<PAGE>
EXHIBIT 99.1
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND FINANCIAL STATEMENT
SCHEDULE
The following Consolidated Financial Statements, Financial Statement
Schedule and Independent Accountants' Reports are included herein on the pages
indicated:
<TABLE>
<CAPTION>
Page
----
<S> <C>
Reports of Independent Accountants..................................................... F-2
Consolidated Balance Sheets as of December 31, 1999 and 1998........................... F-4
Consolidated Statements of Operations for the years ended December 31, 1999,
1998 and 1997...................................................................... F-5
Consolidated Statements of Shareholders' Equity for the years ended December 31, 1999,
1998 and 1997...................................................................... F-6
Consolidated Statements of Cash Flows for the years ended December 31, 1999
1998 and 1997...................................................................... F-7
Notes to Consolidated Financial Statements for the years ended December 31, 1999
1998 and 1997...................................................................... F-8
Schedule II - Valuation and Qualifying Accounts........................................ F-25
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Directors of Eltrax Systems, Inc.:
In our opinion, based on our audits and the report of other auditors as
referred to below, the financial statements listed in the accompanying index
present fairly, in all material respects, the financial position of Eltrax
Systems, Inc. and its subsidiaries at December 31, 1999 and 1998, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1999, in conformity with accounting principles
generally accepted in the United States. In addition, in our opinion, the
financial statement schedule listed in the accompanying index, presents fairly,
in all material respects, the information set forth therein when read in
conjunction with the related consolidated financial statements. These financial
statements and financial statement schedule are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements and financial statement schedule based on our audits. The
consolidated financial statements give retroactive effect to the merger of
Sulcus Hospitality Technologies Corp. ("Sulcus") consummated on March 26, 1999
in a transaction accounted for as a pooling of interests, as described in Note 3
to the consolidated financial statements. We did not audit the financial
statements of Sulcus, which reflected total assets of $39,253,000 as of December
31, 1998, and total revenues of $60,393,000 and $53,822,000, respectively, for
each of the two years in the period ended December 31, 1998. Those statements
were audited by other auditors whose report thereon has been furnished to us,
and our opinion expressed herein, insofar as it relates to the amounts included
for Sulcus, is based solely on the report of the other auditors. We conducted
our audits of these statements in accordance with auditing standards generally
accepted in the United States, which 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, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits and the report of other auditors provide a reasonable basis for the
opinion expressed above.
PricewaterhouseCoopers LLP
Detroit, Michigan
February 28, 2000, except
for discontinued operations
reclassifications and revisions,
the date for which is July 19, 2000,
and Note 10, the date for which is
March 14, 2000
F-2
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Shareholders of
Sulcus Hospitality Technologies Corp.
We have audited the consolidated balance sheet of Sulcus Hospitality
Technologies Corp. as of December 31, 1998 and the related consolidated
statements of operations, stockholders' equity and cash flows for each of the
two years in the period ended December 31, 1998 (not presented separately
herein). 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 generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above (not
presented separately herein) present fairly, in all material respects, the
financial position of Sulcus Hospitality Technologies, Corp. as of December 31,
1998 and the results of its operations and its cash flows for each of the two
years in the period ended December 31, 1998, in conformity with generally
accepted accounting principles.
Crowe, Chizek and Company LLP
Columbus, Ohio
March 26, 1999
F-3
<PAGE>
ELTRAX SYSTEMS, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, December 31,
1999 1998
---------------- ----------------
<S> <C> <C>
ASSETS:
Current assets:
Cash and cash equivalents $ 613,294 $ 7,240,130
Accounts receivable, net of allowance for doubtful
accounts for $1,043,000 and $2,914,000 18,053,692 23,216,686
Inventories 933,497 5,060,159
Net assets held for sale, discontinued operations 22,341,301 -
Other current assets 952,291 4,093,846
---------------- ----------------
Total current assets 42,894,075 39,610,821
Property and equipment, net of accumulated depreciation and
amortization of $1,878,000 and $6,794,000 3,991,653 3,676,231
Capitalized software, net of accumulated amortization
of $12,543,000 - 7,787,225
Intangibles, net of accumulated amortization of
$2,247,000 and $5,150,000 9,168,385 18,906,237
---------------- ----------------
Total assets $ 56,054,113 $ 69,980,514
================ ================
LIABILITIES AND SHAREHOLDERS' EQUITY:
Current liabilities:
Line of credit $ 9,468,882 $ 3,998,203
Accounts payable 9,360,813 6,490,857
Accrued compensation 1,880,876 1,326,570
Accrued expenses 3,733,730 5,211,320
Unearned revenue and customer deposits 4,283,039 11,081,890
Current portion of long-term debt 389,587 2,748,836
---------------- ----------------
Total current liabilities 29,116,927 30,857,676
Long-term debt 54,068 3,340,888
---------------- ----------------
Total liabilities 29,170,995 34,198,564
Shareholders' equity:
Common stock $.01 par value, 50,000,000 shares authorized;
23,808,415 and 23,834,436 shares issued and outstanding 238,086 238,345
Additional paid-in capital 75,678,836 75,667,193
Treasury stock, at cost, 144,273 shares - (387,221)
Accumulated deficit (49,033,804) (39,195,705)
Accumulated other comprehensive loss - (540,662)
---------------- ----------------
Total shareholders' equity 26,883,118 35,781,950
---------------- ----------------
Total liabilities and shareholders' equity $ 56,054,113 $ 69,980,514
================ ================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
ELTRAX SYSTEMS, INC.,
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For the years ended December 31,
1999 1998 1997
--------------- ----------------- ----------------
<S> <C> <C> <C>
Revenue $ 61,684,652 $ 52,604,715 $ 49,934,139
Cost of revenue 41,708,579 39,480,766 41,328,951
--------------- ----------------- ----------------
Gross profit 19,976,073 13,123,949 8,605,188
Operating expenses:
Direct expenses 17,885,190 11,852,597 9,859,921
Research and development 1,391,911 306,654 -
Corporate and administrative 4,438,187 2,262,103 2,368,033
Amortization of intangibles 1,403,766 647,327 435,144
Impaired asset charges - - 5,713,721
Reorganization costs 462,000 - -
Transaction costs 251,078 - -
--------------- ----------------- ----------------
Total operating expenses 25,832,132 15,068,681 18,376,819
--------------- ----------------- ----------------
Operating loss from continuing operations (5,856,059) (1,944,732) (9,771,631)
Interest income 96,498 554,098 1,172,430
Interest expense (279,670) (194,088) (277,473)
--------------- ----------------- ----------------
Loss from continuing operations before income taxes (6,039,231) (1,584,722) (8,876,674)
Income tax (benefit) expense (154,773) 179,770 1,315,970
--------------- ----------------- ----------------
Loss from continuing operations (5,884,458) (1,764,492) (10,192,644)
Loss from discontinued operations, net of income taxes (3,953,642) (4,718,958) (3,149,439)
--------------- ----------------- ----------------
Net loss (9,838,099) (6,483,450) (13,342,083)
=============== ================= ================
Net loss from continuing operations
per common share basic and diluted $ (0.25) $ (0.08) $ (0.57)
=============== ================= ================
Net loss from discontinued operations
per common share-basic and diluted $ (0.16) $ (0.21) $ (0.18)
=============== ================= ================
Net loss per common share-basic and diluted $ (0.41) $ (0.29) $ (0.75)
=============== ================= ================
Weighted average shares outstanding-basic and diluted 23,728,262 22,730,944 17,741,884
=============== ================= ================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE>
ELTRAX SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
Accumulated
Common Stock Additional Treasury Stock Other
--------------------- Paid-in ------------------- Accumulated Comprehensive
Shares Amount Capital Shares Amount Deficit Loss Total
---------- -------- ----------- -------- --------- ------------ ------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE,
December 31, 1996 17,046,027 $170,462 $54,050,056 - $ - $(19,111,445) $(109,308) $ 34,999,765
Net loss - - - - - (13,342,083) - (13,342,083)
Change in unrealized
gains on securities
held for sale - - - - - - 9,605 9,605
Foreign currency
translation
adjustment - - - - - - (387,800) (387,800)
------------
Comprehensive loss, net (13,720,278)
Distributions to
shareholders - - - - - (258,727) - (258,727)
Exercise of stock
options 164,711 1,647 487,590 - - - - 489,237
Issuance of stock to
consultants 7,649 76 26,024 - - - - 26,100
Exercise of stock
warrants 135,000 1,350 484,650 - - - - 486,000
Issuance of common
stock for
acquisitions 1,925,768 19,258 7,387,393 - - - - 7,406,651
Private Placement,
net 1,050,000 10,500 3,999,509 - - - - 4,010,009
Retirement of shares
received in
litigation
settlement (100,000) (1,000) (449,000) - - - - (450,000)
---------- -------- ----------- -------- --------- ------------ --------- ------------
BALANCE,
December 31, 1997 20,229,155 $202,293 $65,986,222 - $ - $(32,712,255) $(487,503) 32,988,757
Net loss - - - - - (6,483,450) - (6,483,450)
Change in unrealized
losses on
securities
held for sale - - - - - - (8,750) (8,750)
Foreign currency
translation
adjustment - - - - - - (44,409) (44,409)
------------
Comprehensive loss, net (6,536,609)
Exercise of stock
warrants 1,716,667 17,167 7,357,833 - - - - 7,375,000
Warrants issued in
exchange for
services - - 30,000 - - - - 30,000
Issuance of stock 1,423,614 14,235 158,788 - - - - 173,023
Treasury stock
purchases - - - (144,273) (387,221) - - (387,221)
Encore acquisition 465,000 4,650 2,134,350 - - - - 2,139,000
---------- -------- ----------- -------- --------- ------------ --------- ------------
BALANCE,
December 31, 1998 23,834,436 $238,345 $75,667,193 (144,273) $(387,221) $(39,195,705) $(540,662) 35,781,950
Net loss - - - - - (9,838,099) - (9,838,099)
Foreign currency
translation
adjustment - - - - - - (95,760) (95,760)
------------
Comprehensive loss, net (9,933,859)
Issuance of stock 119,829 1,200 380,305 - - - - 381,505
Retirement of treasury
stock (144,273) (1,443) (385,778) 144,273 387,221 - - -
Warrants issued in
exchange for
services - - 24,000 - - - - 24,000
Payment in lieu of
issuance of
fractional shares (1,577) (16) (6,884) - - - - (6,900)
Reclassification of
assets held for sale - - - - - - 636,422 636,422
---------- -------- ----------- -------- --------- ------------ --------- ------------
BALANCE,
December 31, 1999 23,808,415 $238,086 $75,678,836 - $ - $(49,033,804) $ - $ 26,883,118
========== ======== =========== ======== ========= ============ ========= ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE>
ELTRAX SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the years ended December 31,
1999 1998 1997
------------ ------------- -------------
<S> <C> <C> <C>
Operating Activities:
Net loss $(9,838,099) $ (6,483,450) $(13,342,083)
Adjustments to reconcile net loss to cash (used for)
provided by operations:
Amortization of capitalized software 1,456,927 1,491,528 1,848,829
Amortization of intangibles 2,204,870 1,650,034 1,228,020
Depreciation 1,357,061 1,486,435 1,061,170
Impaired asset charge - 2,270,000 5,713,721
Adjustment to deferred income taxes - 2,100,000 1,315,970
Settlement of lawsuit - - (450,000)
Accrued severance obligations - - 1,538,000
Gain on disposal of product line - - (188,000)
Other (40,185) (16,033) (354,302)
Changes in current operating items:
Accounts receivable, net (8,426,545) (1,629,792) 1,889,005
Inventories (127,677) 2,373,148 (190,037)
Other current assets 294,296 (12,987) (887,357)
Accounts payable 6,739,195 (2,312,336) (4,793,122)
Accrued compensation 1,612,883 52,513 172,879
Accrued expenses 1,564,379 405,000 106,580
Unearned revenue and customer deposits 2,654,606 435,609 (86,816)
----------- ------------ -------------
Net cash (used for) provided by operating activities: (548,289) 1,809,669 (5,417,543)
----------- ------------ -------------
Investing Activities:
Cash paid in connection with acquisitions, net of cash
acquired of $238,000 in 1998 and $457,000 in 1997 - (8,266,021) (2,038,413)
Proceeds from sale of short-term investments - - 12,218,000
Proceeds from disposal of subsidiary, net of costs - - 191,000
Proceeds from sale of building - - 399,000
Software development costs capitalized (2,078,734) (1,741,848) (1,568,000)
Purchases of property and equipment (4,347,453) (2,140,637) (1,468,692)
----------- ------------ -------------
Net cash (used for) provided by investing activities: (6,426,187) (12,148,506) 7,732,895
----------- ------------ -------------
Financing Activities:
Proceeds from term loan - 4,000,000 -
Payments on long-term loan (2,320,115) (788,218) (314,000)
Proceeds (payments) on credit line, net 2,324,725 (2,046,326) (584,010)
Proceeds from issuances of common stock and warrants, net 381,505 7,548,023 5,011,346
Payments issued in lieu of fractional shares (6,900) - -
Purchase of treasury stock - (387,221)
Distributions to shareholders - - (258,727)
----------- ------------ -------------
Net cash provided by financing activities: 379,215 8,326,258 3,854,609
----------- ------------ -------------
Effects of exchange rate changes on cash (31,575) (7,655) (107,498)
(Decrease) increase in cash and cash equivalents (6,626,836) (2,020,234) 6,062,463
----------- ------------ -------------
Cash and Cash Equivalents:
Beginning of period 7,240,130 9,260,364 3,197,901
----------- ------------ -------------
End of period $ 613,294 $ 7,240,130 $ 9,260,364
=========== ============ =============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-7
<PAGE>
ELTRAX SYSTEMS, INC.
Notes to Consolidated Financial Statements
1. Organization and Basis of Presentation
Eltrax Systems, Inc. (the "Company") is a global provider of outsourced
information technology solutions. The Company operates through two separate
business units: the Technology Services Group ("TSG") and the Hospitality
Services Group ("HSG"). On July 19, 2000, the board of directors of the Company
formally determined to dispose of the Company's Hospitality Services Group.
The TSG consists of three operating units that provide clients with
integrated solutions: Technology Solutions, Customer Care Solutions and
Application Services Provider. The Technology Solutions division designs and
implements networks, develops and integrates custom applications and manages and
maintains daily network operations. The Customer Care Solutions division
services over 2,500 sites and consists of help desk/applications support and
training/installation services. The ASP division provides Web-hosted software
products.
The HSG designs, manufactures, markets and services enterprise information
products and services for the global hospitality industry. These products and
services consist of application-specific software and hardware systems,
supplemented by training, installation, maintenance, and call center support
services. The HSG concentrates on three major areas: restaurant solutions,
lodging solutions and energy management solutions. In addition to the HSG's
software enterprise products and services and hardware products, HSG offers a
wide variety of support services and products for its hotel and restaurant
information systems. The HSG offers training, installation, call center support
and maintenance contracts for all hospitality products. The operations of the
HSG have been reflected as a discontinued operation in the consolidated
statements of operations and in the accompanying notes.
The consolidated financial statements include the accounts of Eltrax
Systems, Inc. and its subsidiaries, including Sulcus Hospitality Technologies
Corp. ("Sulcus") and Windward Technology Group, Inc. ("Windward"), which merged
with the Company on March 26, 1999 and March 31, 1999, respectively (see
Note 3). These transactions were accounted for as poolings-of-interests. Prior
financial statements have been restated to include the results of Sulcus and
Windward for all periods presented.
Certain prior year amounts in the consolidated financial statements have
been reclassified to conform with the current year presentation. These
reclassifications had no effect on previously reported net loss or shareholders'
equity.
2. Summary of Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management of the Company 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 those estimates.
F-8
<PAGE>
ELTRAX SYSTEMS, INC.
Notes to Consolidated Financial Statements
2. Summary of Significant Accounting Policies - (continued)
Cash Equivalents
The Company considers all investments purchased with an original maturity of
three months or less to be cash equivalents. Cash equivalents consist primarily
of commercial paper that is recorded at cost, which approximates market.
Inventories
Inventories consist primarily of purchased components and are stated at the
lower of cost or market. Cost is determined by using primarily the first-in,
first-out method.
Property and Equipment
Property and equipment, substantially consisting of furniture and
equipment, are stated at cost. Depreciation is computed using the straight-line
method over estimated useful lives, ranging from two to ten years. Upon
retirement or disposal of furniture and equipment, the cost and accumulated
depreciation are removed from the accounts, and any gain or loss is included in
income. Maintenance and repairs are charged to expense as incurred.
Capitalized Software
Software development costs incurred prior to establishing technological
feasibility are charged to operations and included in research and development
costs. Software development costs incurred after establishing technological
feasibility are capitalized. Purchased software has been developed by third
parties to the stage of technological feasibility at the date of acquisition.
Amortization of purchased and capitalized software is provided for when the
product is available for general release to customers. The amortization is
determined as the greater of the amount computed using the remaining estimated
economic life of the product or the ratio that current gross revenues for a
product bear to the total of current and anticipated revenues for that product.
The software products are generally being amortized over three to seven years.
The Company evaluates the carrying value of capitalized software based on
current operating results and forecasts of undiscounted net cash flows expected
from the respective software operating results. The Company's software
development activity relates only to HSG. Accordingly, capitalized software
has been included in net assets held for sale at December 31, 1999. Software
development costs charged to operations have been included in discontinued
operations on the accompanying statements of operations.
F-9
<PAGE>
ELTRAX SYSTEMS, INC.
Notes to Consolidated Financial Statements
2. Summary of Significant Accounting Policies - (continued)
Intangibles
Intangible assets represent the excess of cost over the fair value of net
tangible assets acquired and purchased customer lists. These assets are
generally being amortized on a straight-line basis over estimated useful lives
ranging from three to twenty years. Intangibles are evaluated for potential
impairment of value whenever events or changes in circumstances indicate that
full asset recoverability is questionable. Such evaluations consider current as
well as anticipated operating results measured on the basis of undiscounted cash
flows of the operation relative to the asset.
Intangible assets consist of the following:
Amortization
Period (Years) 1999 1998
-------------- ----------- -----------
Goodwill 10-20 $22,056,561 $22,056,561
Installed customer base 3 2,000,000 2,000,000
----------- -----------
24,056,561 24,056,561
Less goodwill from discontinued
operations 12,640,735
-----------
11,415,826
-----------
Accumulated amortization (7,355,194) (5,150,324)
Less accumulated amortization
from discontinued operations (5,107,753)
----------- -----------
(2,247,441)
-----------
$ 9,168,385 $18,906,237
=========== ===========
Income Taxes
The Company accounts for income taxes under the provisions of the Financial
Accounting Standards Board's Statement No. 109 ("SFAS 109"), "Accounting for
Income Taxes" which requires the use of the asset and liability method of
accounting for income taxes. Under the asset and liability method of SFAS 109,
deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss carryforwards. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered or
settled. Under SFAS 109, the effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date. A valuation allowance is provided to reduce tax assets to an
amount more likely than not to be realized.
Income tax expense includes U.S. and international income taxes. Non-U.S.
subsidiaries compute taxes in effect in the various countries. Earnings of
these subsidiaries may also be subject to additional income and withholding
taxes when they are distributed as dividends. Undistributed earnings of non-
U.S. subsidiaries are not material.
Revenue Recognition
The Company recognizes revenue on sales of systems including software and
hardware upon delivery or installation. Revenue for services such as
installation and consulting is recognized as the service is performed. Revenue
from software support and hardware maintenance agreements is recorded as
deferred revenue and recognized ratably over the terms of the agreements.
Included in accounts receivable are accrued revenues for sales and services
performed and unbilled at the end of the year. These unbilled revenues, totaling
approximately $1.2 million at December 31, 1999, for continuing operations,
are generally billed shortly after the end of the year.
Foreign Currency Translation
The financial statements of the Company's non-U.S. subsidiaries are
measured in their local currency and then translated into U.S. dollars. All
balance sheet accounts have been translated using the current rate of exchange
at the balance sheet date. Results of operations have been translated using the
average rates prevailing throughout the year. Translation gains or losses
resulting from the changes in the exchange rates are accumulated in a separate
component of shareholders' equity. These amounts have been included in the
Company's discontinued operations.
F-10
<PAGE>
ELTRAX SYSTEMS, INC.
Notes to Consolidated Financial Statements
2. Summary of Significant Accounting Policies - (continued)
Fair Value of Financial Instruments
Estimates of fair value are made at a specific point in time, based on
relevant market prices and information about the financial instrument. The
estimated fair values of financial instruments are not necessarily indicative of
the amounts the Company might realize in actual market transactions. The
following methods and assumptions were used by the Company in estimating its
fair value disclosures for financial instruments:
Cash and cash equivalents: The carrying amounts reported in the balance sheet
-------------------------
for cash approximates their fair value.
Short and long-term debt: The carrying amount of the Company's borrowings under
------------------------
floating rate debt approximates its fair value. Long-term fixed rate debt is
not material.
At December 31, 1999 and 1998, the carrying amounts of all financial instruments
approximate their fair values.
Net Income (Loss) Per Share
The basic net income (loss) per common share is determined by dividing net
income (loss) by the weighted average number of common shares outstanding.
Diluted net income per common share is determined by dividing diluted net income
by the weighted average number of common shares and common stock equivalents
outstanding. Common stock equivalents related to options and warrants have been
excluded from the computation of diluted net income (loss) per common share
because their inclusion would have had an antidilutive effect.
3. Discontinued operations
On July 19, 2000, the Company's board of directors formally approved the
disposition of its Hospitality Services Group ("HSG"). The Company expects to
sell HSG during fiscal year 2000. HSG is reported herein as a discontinued
operation. The December 31, 1999, balance sheet and the consolidated statements
of operations have been reclassified to segregate the net assets and operating
results of the HSG business segment.
Summary operating results of the discontinued operations are as follows:
<TABLE>
<CAPTION>
Years ended December 31
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Revenue $67,627,675 $62,139,128 $53,822,256
Gross profit 32,653,838 30,608,375 25,824,386
Operating loss (3,315,664) (2,259,327) (2,721,043)
Interest expense 458,722 358,631 428,396
Income tax expense 179,256 2,101,000 -0-
Loss from
discontinued operations (3,953,642) (4,718,958) (3,149,439)
Comprehensive loss from
discontinued operations (4,049,402) (4,763,367) (3,537,239)
</TABLE>
Net assets held for sale at December 31, 1999, are as follows:
Current assets $ 20,691,138
Furniture and equipment, net 2,713,598
Capitalized software, net 8,370,404
Intangibles, net 7,532,982
Current liabilities (17,603,243)
Accumulated other comprehensive loss 636,422
During 1998, the Company's discontinued operations recorded a $2.3 million
charge for impaired assets consisting of the write-offs of $1.9 million for
previously capitalized software development costs and $342,000 for certain
goodwill.
4. Mergers and Acquisitions
Sulcus Hospitality Technologies Corp.
--------------------------------------
On March 26, 1999, the Company issued 9,275,000 shares of its common stock in
exchange for all of the outstanding common stock of Sulcus. Sulcus is a provider
of proprietary software, point-of-sale systems, energy management products, and
technology services primarily to the hospitality and restaurant industries. The
merger with Sulcus was accounted for as a pooling-of-interests and, accordingly,
the Company's consolidated financial statements have been restated to include
the accounts and operations of Sulcus for all periods prior to the merger.
Windward Technology Group
-------------------------
On March 31, 1999, the Company issued 1,375,000 shares of its common stock
in exchange for all of the outstanding common stock of Windward. Windward
focuses on the application development service market, with added networking and
network management solutions. The merger with Windward was accounted for as a
pooling-of-interests and, accordingly, the Company's consolidated financial
statements have been restated to include the accounts and operations of Windward
for all periods prior to the merger.
F-11
<PAGE>
ELTRAX SYSTEMS, INC.
Notes to Consolidated Financial Statements
4. Mergers and Acquisitions - (Continued)
Encore Systems, Inc.
--------------------
Effective September 1, 1998 the Company acquired Encore Systems, Inc.
("Encore"), Global Systems and Support, Inc. ("GSSI"), and Five Star Systems,
Inc. ("Five Star") (collectively "Encore"). Encore provides software and
services primarily to the hospitality industry. The Company paid the
shareholders of Encore cash of $8.5 million as well as 465,000 unregistered
shares of the Company's common stock. The total consideration paid was
approximately $11.0 million including transaction costs. The common stock was
valued at $4.60 a share representing the market value of the shares upon
announcement of the transaction.
Additional cash payments are also due to the Encore shareholders beginning
in 2002 if a specific customer is still using existing software and paying
Encore for ongoing maintenance services on that software. The contingent payment
would be approximately 10% of the maintenance contract amount. As it is not
possible to estimate what, if any, payment would be due, no such amounts have
been recognized. However, if amounts are paid, this additional purchase price
will be recorded as an intangible asset and amortized over the estimated life of
the aforementioned service arrangement.
The transaction was accounted for as a purchase and, accordingly, the
results of Encore are included in the Company's financial statements from
September 1, 1998. Intangibles resulting from the transaction were approximately
$12.3 million, allocated as follows: $4.0 million to software products acquired,
$2.0 million to the installed customer base and workforce with the remainder of
$6.3 million to goodwill.
Senercomm, Inc.
---------------
In December 1997, prior to the Company's merger with Sulcus, Sulcus
acquired Senercomm, Inc. ("Senercomm") for approximately $2.2 million. Senercomm
designs, manufactures and sells in-room information systems that are used to
gather guest data and environmentally control the condition maintained within a
hotel room. The purchase price consisted of $500,000 of Sulcus common stock,
$500,000 cash paid at closing, and the balance of approximately $1.2 million
payable in three equal annual installments including interest at the rate of
eight percent. The acquisition was accounted for as a purchase and, accordingly
the results of Senercomm are included in the Company's financial statements from
January 1, 1998. The purchase price was allocated to identifiable assets of
working capital and the remaining balance of $2.0 million to purchased software.
DataComm Associates, Inc. and Midwest Telecom Associates, Inc.
--------------------------------------------------------------
On October 31, 1997, the Company acquired the outstanding common stock of
DataComm Associates, Inc. ("DataComm") and Midwest Telecom Associates, Inc.
("Telecom") for 500,000 unregistered shares of the Company's common stock.
DataComm provides data networking products and services. These acquisitions
were accounted for as purchases and, accordingly, the results of DataComm and
Telecom are included in the Company's financial statements from November 1,
1997. The total purchase price was approximately $2.2 million (including
transaction costs). The value assigned to the Company's unregistered common
stock issued in the acquisition was 35% below the price at which the Company's
registered shares were then trading. This discount represented management's
estimate of the value of the unregistered shares. The Company recorded goodwill
of approximately $1.3 million in connection with the acquisitions.
F-12
<PAGE>
ELTRAX SYSTEMS, INC.
Notes to Consolidated Financial Statements
4. Mergers and Acquisitions - (Continued)
Hi-Tech Connections, Inc.
-------------------------
Effective August 1, 1997, the Company acquired the outstanding stock of Hi-
Tech Connections, Inc. ("Hi-Tech") for 169,999 shares of the Company's common
stock (which included 20,000 shares issued to a third party for certain expenses
incurred in the transaction). Hi-Tech provides data networking products and
services. Under the terms of the agreement, 750,000 additional unregistered
shares were issued in March 1998 based on the earnings generated by Hi-Tech
during the six month period ended December 31, 1997. The accompanying financial
statements have reflected the additional shares as if issued at December 31,
1997. The acquisition has been accounted for as a purchase and, accordingly,
the results of Hi-Tech operations are included in the Company's consolidated
financial statements from August 1, 1997. The total purchase price was
approximately $3.2 million (including transaction costs). The value assigned to
the Company's unregistered common stock issued in the acquisition was 35% below
the price at which the Company's registered shares were then trading. This
discount represented management's estimate of the value of the unregistered
shares. The Company recorded goodwill of approximately $3.2 million in
connection with the acquisition.
Four Corners Technology, Inc.
-----------------------------
On July 1, 1997, the Company acquired the outstanding stock of Four Corners
Technology, Inc. ("Four Corners") for 400,000 unregistered shares of the
Company's common stock. Four Corners provides data networking products and
services. The acquisition has been accounted for as a purchase and,
accordingly, the results of Four Corners' operations are included in the
Company's consolidated financial statements from July 1, 1997. The total
purchase price was approximately $1.9 million (including transaction costs). The
value assigned to the Company's unregistered common stock issued in the
acquisition was 35% below the price at which the Company's registered shares
were then trading. This discount represented management's estimate of the
reduced value of the unregistered shares. The Company recorded goodwill of
approximately $1.6 million in connection with the acquisition.
EJG Techline, Incorporated
--------------------------
On May 14, 1997, the Company issued 230,000 unregistered shares of its
common stock in exchange for all of the outstanding common stock of EJG
Techline, Incorporated ("Techline"). Techline provides data networking products
and services. The merger with Techline was accounted for as a pooling-of-
interests and, accordingly, the Company's consolidated financial statements have
been restated to include the accounts and operations of Techline for all periods
prior to the merger and to eliminate intercompany sales prior to the merger.
MST Distribution
----------------
On January 31, 1997, Atlantic Network Systems, Inc., a wholly-owned
subsidiary of the Company acquired certain assets of MST Distribution ("MST").
The purchase price, including transaction costs, was approximately $2.0 million.
The acquisition was accounted for as a purchase and the Company recorded $1.4
million of goodwill in connection with the acquisition. Goodwill of
approximately $1.3 million was written off in the fourth quarter of 1997 due to
the Company's decision to focus on end user customers and to eliminate sales to
the majority of the MST customer base.
F-13
<PAGE>
ELTRAX SYSTEMS, INC.
Notes to Consolidated Financial Statements
4. Mergers and Acquisitions - (Continued)
Datatech
--------
The Company purchased Datatech in 1996. As a result of events, which
occurred at Datatech in 1997, the Company determined that there was a permanent
impairment in the fair value of the goodwill recorded in connection with the
purchase and wrote-off the remaining balance of the Datatech goodwill,
approximately $4.4 million. The Company decided to change its focus from the
remaining Datatech customer base and close the Datatech facility in early 1998.
The following table summarizes the combined and separate unaudited results of
the Company, Sulcus and Windward for the period beginning on January 1, 1999,
and ending on the dates of the poolings of Sulcus and Windward.
<TABLE>
<CAPTION>
----------------------------------------------------------------
Eltrax Sulcus Windward Total
----------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenue $13,216,449 $14,855,124 $1,617,698 $29,689,271
Net loss $(5,800,557) $ (161,057) $ (149,600) $(6,111,214)
</TABLE>
The following table summarizes the combined and separate results of the Company,
Sulcus and Windward for the years ended December 31, 1998 and 1997. The 1998
and 1997 results included in the statements of operations have been restated to
include the results of Sulcus and Windward.
<TABLE>
<CAPTION>
For the years ended
December 31,
-----------------------------------
1998 1997
-----------------------------------
<S> <C> <C>
Revenue:
Eltrax, as previously reported $ 50,662,787 $ 49,934,139
Sulcus 60,392,989 53,822,256
Windward 3,687,967 --
------------ ------------
Total revenue $114,743,743 $103,756,395
============ ============
</TABLE>
<TABLE>
<CAPTION>
For the years ended
December 31,
---------------------------------------
1998 1997
---------------------------------------
<S> <C> <C>
Net income (loss):
Eltrax, as previously reported $(2,522,349) $(11,332,343)
Sulcus (4,190,750) (2,009,740)
Windward 229,649 --
----------- -------------
Total net loss $(6,483,450) $(13,342,083)
=========== =============
</TABLE>
F-14
<PAGE>
ELTRAX SYSTEMS, INC.
Notes to Consolidated Financial Statements
5. Reorganization Costs
In connection with the Company's mergers with Sulcus and Windward, and the
relocation of Company headquarters to Atlanta, the Company has recorded
significant reorganization costs in 1999. These charges were based upon
Management's plans established in the first quarter of 1999, and completed by
December 31, 1999, and consist of the following items:
Reorganization Amount Accrued at
Costs December 31, 1999
-------------- -----------------
Severance and related costs $1,846,000 $ -
Facility costs 1,138,000 305,000
Recruiting and relocation 462,000 -
Program closure costs 716,000 -
Other 469,900 107,000
---------- --------
$4,631,900 $412,000
========== ========
The severance and related costs are attributable to approximately 37
employees who have been terminated by the Company. These costs include
approximately $722,000 paid by Sulcus to a former executive of Sulcus to settle
obligations under an employment agreement.
The facility costs represent the costs for leased facilities that will not
be utilized for their full terms. The leases include the former Sulcus corporate
headquarters and a portion of the Sulcus office used for research and
development activities.
The recruiting and relocation costs relate to the relocation of the
Company's headquarters to Atlanta and organizational changes resulting from the
mergers.
The Company also determined during the first quarter to discontinue
development of certain products, including the Legacy products previously being
developed at Sulcus. Program closing costs include the write-off of $167,000 in
previously capitalized software costs and a $350,000 settlement of a royalty
claim related to the discontinued Sulcus Legacy products.
Included in other costs is the write-down of assets affected by the
Company's change in product focus as a result of the reorganization.
6. Shareholders' Equity
Preferred Stock
The Company originally authorized 1,000,000 shares of Preferred Stock,
30,000 of which were designated as Series A convertible Preferred Stock (the
"Preferred" Stock). All 30,000 shares of the Preferred Stock have been
converted into 300,000 shares of the Company's common stock. There were no
outstanding shares of the Preferred Stock at December 31, 1999 and 1998.
Currently, there are 970,000 shares of undesignated Preferred Stock which are
authorized but unissued.
F-15
<PAGE>
ELTRAX SYSTEMS, INC.
Notes to Consolidated Financial Statements
6. Shareholders' Equity - (continued)
Litigation Settlement
During the fourth quarter of 1997, the Company settled certain litigation
with the prior owners of Datatech. The settlement resulted in a payment of
$20,000 and 100,000 shares of the Company's Common Stock to the Company. These
shares have been reflected as retired in the accompanying financial statements.
The total payment, valued at $470,000, represented the reimbursement by the
prior owners of certain selling, general and administrative expenses.
Stock Warrants
In connection with various financing and acquisition transactions, and
related services provided to the Company, the Company has issued warrants to
purchase the Company's Common Stock. A summary of warrants outstanding at
December 31, 1999, is as follows:
Number Exercise
Year Issued of Warrants Price Expiration
--------------------------------- ----------- ------------ ------------
Nine months ended
December 31, 1996 275,000 $5.25-$6.00 October 2006
Year ended December 31, 1997 265,000 $5.00-$6.00 January 2007
-------
Total warrants outstanding 540,000
=======
The warrants are vested as of December 31, 1999, except for 172,500
warrants which will vest upon the attainment of certain common stock prices and
the continuance of services provided.
During 1997 100,000 of the warrants issued during the nine-month period
ending December 31, 1996 were re-priced from $6.00 to $5.25.
In 1998, warrants for 1,716,667 shares were exercised, including 1,050,000
shares related to a Private Placement. The proceeds in 1998 from warrant
exercises were $7.4 million. Warrants for 135,000 shares were exercised in 1997
resulting in proceeds to the Company of $486,000.
F-16
<PAGE>
ELTRAX SYSTEMS, INC.
Notes to Consolidated Financial Statements
7. Stock Based Compensation Plan
The Company grants stock options under a stock-based incentive compensation
plan (the "Plan"). The Company applies APB Opinion 25 and related
Interpretations in accounting for the Plan. In 1995, the FASB issued FASB
Statement No. 123 "Accounting for Stock-Based Compensation" ("SFAS 123") which,
if fully adopted by the Company, would change the methods the Company applies in
recognizing the cost of the Plan. Adoption of the cost recognition provisions of
SFAS 123 is optional and the Company has decided not to elect these provisions
of SFAS 123. However, pro forma disclosures as if the Company adopted the cost
recognition provisions of SFAS 123 in 1995 are required by SFAS 123 and are
presented below.
Under the Plan, the Company is authorized to issue shares of Common Stock
pursuant to "Awards" granted in various forms, including incentive stock options
(intended to qualify under Section 422 of the Internal Revenue Code of 1986, as
amended), non-qualified stock options, and other similar stock-based Awards. The
Company granted stock options in 1999 under the Plan in the form of incentive
stock options.
Stock Options
The Company granted stock options in 1999 to employees. The stock options
granted in 1999 have contractual terms of 10 years. The majority of options
granted to the employees have an exercise price equal to the fair market value
of the stock at grant date. The majority of options granted in 1999 vest
one-fourth each year, beginning on the date of grant.
A summary of the status of the Company's stock options granted to employees
as of December 31, 1999, December 31, 1998, and December 31, 1997 and the
changes during the year ended on these dates is presented below:
Employee Stock Options
<TABLE>
<CAPTION>
1999 1998 1997
----------------------- ----------------------- -----------------------
Number of Weighted Number of Weighted Number of Weighted
Shares of Average Shares of Average Shares of Average
Underlying Exercise Underlying Exercise Underlying Exercise
Options Prices Options Prices Options Prices
---------- -------- ---------- -------- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of the year 3,356,637 $ 4.17 2,533,046 $ 4.04 1,555,066 $ 4.27
Granted 1,834,500 4.00 1,588,953 4.54 2,436,228 4.50
Exercised 116,268 3.24 14,232 3.09 139,609 3.26
Forfeited 1,010,910 4.39 751,130 4.61 1,318,639 5.94
Expired 5,752 17.39 0 - 0 -
Outstanding at end of year 4,058,207 3.07 3,356,637 4.17 2,533,046 4.04
Exercisable at end of year 2,314,801 3.43 2,148,559 4.17 1,464,747 3.93
Weighted-average fair value of all
options granted 2.47 3.14 2.76
</TABLE>
F-17
<PAGE>
ELTRAX SYSTEMS, INC.
Notes to Consolidated Financial Statements
7. Stock Based Compensation Plan - (continued)
The fair value of each stock option granted is estimated on the date of
grant using the Black-Scholes option-pricing model with the following
weighted-average assumptions:
Assumption 1999 1998 1997
Expected Term 5.00 5.00 1.00 to 5.00
Expected Volatility 69.16% 30% - 60% 30% - 60%
Expected Dividend Yield 0.00% 0.00% 0.00%
Risk-Free Interest Rate 5.53% 5.3% to 6.0% 6.0%
The following table summarizes information about employee stock options
outstanding at December 31, 1999:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
--------------------------- ---------------------------
Range of Number Wgtd. Avg. Wgtd. Avg. Number Wgtd. Avg.
Exercise Outstanding Exercise Remaining Exercisable Exercise
Prices at 12/31/99 Price Contr. Life at 12/31/99 Price
-------------- ------------ ---------- ----------- ------------ ----------
<S> <C> <C> <C> <C> <C>
$0.38 to 3.07 721,996 $1.99 6.37 561,858 $1.69
3.19 to 3.86 1,044,746 3.69 9.07 276,041 3.71
3.88 to 4.44 1,020,134 4.07 9.18 358,247 4.12
4.50 to 7.68 1,271,331 5.50 7.83 1,118,655 5.46
-------------- --------- ----- ---- --------- -----
$0.31 to $7.68 4,058,207 $4.05 8.23 2,314,801 $4.13
</TABLE>
F-18
<PAGE>
ELTRAX SYSTEMS, INC.
Notes to Consolidated Financial Statements
7. Stock Based Compensation Plan - (continued)
Had the Company used the fair value-based method of accounting for its
stock option and incentive plans beginning on April 1, 1996 and charged
compensation cost against income, over the vesting period, based on the fair
value of options at the date of grant, the net loss and net loss per common
share for the years ending December 31, 1999, 1998 and 1997, would have been
increased to the following pro forma amounts:
Years Ended December 31,
------------------------------------------
1999 1998 1997
------------------------------------------
Net Loss
As reported $ (9,838,000) $(6,483,000) $(13,342,000)
Pro forma (11,139,000) (9,389,000) (17,095,000)
Net Loss per Common Share
As reported $ (0.41) $ (0.29) $ (0.75)
Pro forma (0.47) (0.41) (0.96)
8. Leases
As Lessor
The Company's discontinued operation has a sales-type lease program with a
finance company whereby it receives 100% of the discounted minimum lease
payments at inception of the lease, assigns the lease payments to the finance
company, grants the finance company a security interest in the leased equipment
and accepts certain recourse liability in event of default by the lessee. The
Company retains ownership in the residual value of the leased property and has
recorded a reserve for the estimated liability under the recourse agreement. The
following table sets forth net investment in these financed sales-type leases:
In thousands
December 31, 1999 1998
------------------------------ ------ ------
Estimated residual value of
Leased property $1,783 $1,820
Unearned income (216) (245)
------ ------
Net investment in financed
Sales-type leases $1,567 $1,575
====== ======
F-19
<PAGE>
ELTRAX SYSTEMS, INC.
Notes to Consolidated Financial Statements
8. Leases - (continued)
As Lessor - (continued)
At December 31, 1999, the Company has accrued $478,000 representing
estimated amounts contingently payable related to sales-type leases financed
under this agreement. Since the inception of the program in 1995, actual losses
from recourse provisions have been $1.1 million. The amount of lease payments
assigned and the contingent liability under the recourse agreements are
approximately $8.7 million and $1.6 million, respectively, at December 31, 1999.
As Lessee
The Company leases office space and certain equipment under operating
leases which expire at various dates through 2012 with some leases containing
options for renewal. Rent expense under these leases for continuing operations
was $1.2 million, $602,000 and $464,000 for the years ended December 31, 1999,
1998 and 1997, respectively.
As of December 31, 1999, approximate future commitments under operating leases
of continuing operations in excess of one year are as follows:
2000 $ 1,713,000
2001 1,617,000
2002 1,511,000
2003 1,489,000
2004 1,476,000
thereafter 7,437,000
-----------
Total $15,243,000
===========
9. Income Taxes
The significant components of income taxes are as follows:
Years Ended December 31,
------------------------------------
1999 1998 1997
------------------------------------
Income Taxes
Currently Payable $(154,773) $179,770 $ -
Deferred - - 1,315,970
--------- -------- ----------
Income Tax Expense $(154,773) $179,770 $1,315,970
========= ======== ==========
A reconciliation of the statutory U.S. federal income tax rate to the
Company's effective tax was as follows:
Years Ended December 31,
--------------------------------
1999 1998 1997
--------------------------------
Statutory U.S. rate (34.0)% (34.0)% (34.0)%
State income taxes, net of federal benefit (3.4) (4.0) (4.0)
Non-deductible goodwill 4.5 8.9 18.2
Non-deductible merger costs 8.7 - -
Effect of valuation allowance 21.6 40.4 34.6
----- ---- -----
(2.6)% 11.3% 14.8%
===== ==== =====
F-20
<PAGE>
ELTRAX SYSTEMS, INC.
Notes to Consolidated Financial Statements
9. Income Taxes - (continued)
Deferred income taxes are recognized to reflect the net tax effects of
temporary differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for income tax purposes.
Significant components of the Company's net deferred tax assets are as follows:
December 31,
1999 1998
----------- -----------
Deferred tax assets and
(liabilities):
Net operating loss
carryforwards $ 2,569,000 $11,644,000
Discontinued 11,569,000
Capital loss
carryforwards 230,000 206,000
Research and development
credits 15,000 1,232,000
Unearned revenue 1,092,000 977,000
Reserves 1,013,000 1,425,000
Compensation accruals 637,000 1,398,000
Cash to accrual adjustments - (121,000)
Capitalized software costs 0 (1,521,000)
Valuation allowance (17,125,000) (15,240,000)
----------- -----------
Net deferred tax asset $ - $ -
=========== ===========
The valuation allowance for deferred tax assets as of December 31, 1999,
was approximately $17,125,000. The change in the total valuation allowance for
1999 and 1998 resulted primarily from increases in the above described temporary
differences on which a valuation allowance was provided.
At December 31, 1999, the Company had net operating loss ("NOL") carry-
forwards of approximately $33.7 million of which $25.9 million is attributable
to discontinued operations, a portion of which are subject to certain
limitations under the Internal Revenue Code Section 382, and other business tax
credits of approximately $1.2 million attributable to discontinued operations.
If not utilized, the NOL's will begin expiring in years 2001 through 2019.
10. Impaired Asset Charges
During 1997, the Company recorded a $5.7 million charge for impaired assets
consisting of i) the write-off of goodwill of approximately $1.3 million due to
the Company's decision to eliminate sales to the majority of the MST customer
base, and ii) the write-off of goodwill of approximately $4.4 million due to the
Company's decision to close the Datatech facility in early 1998.
F-21
<PAGE>
ELTRAX SYSTEMS, INC.
Notes to Consolidated Financial Statements
11. Financing Arrangements
On March 14, 2000, the Company entered into a $20,000,000 revolving credit
agreement (the "Credit Agreement") with PNC Bank, National Association (the
"Bank"), and then took advances under the Credit Agreement to repay its existing
lines of credit and certain term notes.
The Credit Agreement is collateralized by substantially all of the
Company's assets. At the Company's option, advances under the Credit Agreement
may be made as either Domestic Rate Loans or Eurodollar Rate Loans. Interest on
Domestic Rate Loans is computed at .5% above the Bank's Base Rate, while
interest on Eurodollar Rate Loans are computed at 2.5% above the Eurodollar
Rate. At December 31, 2000, interest rates may change by .25% depending on fixed
charge coverage levels. The Credit Agreement provides for up to $3,000,000 in
letters of credit. Advances are limited by a formula based on eligible
receivables, certain cash balances, outstanding letters of credit and certain
subjective limitations. Interest payments are due monthly, and the Credit
Agreement expires March 2003. The Credit Agreement includes fees of 3% on
outstanding letters of credit and .25% on available borrowings.
The Company has reclassified its December 31, 1999, debt balances in
accordance with the terms of the Credit Agreement. Financing arrangements at
December 31, 1999 and 1998, as reclassified, are as follows:
1999 1998
---------- ----------
Outstanding indebtedness
under Revolving Credit Agreement $9,468,882 $3,998,203
========== ==========
Term loan payable $ - 3,666,667
Notes payable - 1,173,656
Other 623,655 1,249,401
---------- ----------
Total $ 623,655 $6,089,724
Less indebtedness from
discontinued operations 180,000
Less current portion 389,587 2,748,836
---------- ----------
$ 54,068 $3,340,888
========== ==========
Additional eligible borrowings under the Credit Agreement at December 31,
1999, would have been approximately $3.7 million. Under the terms of the Credit
Agreement, the Company is required to meet increasing quarterly cash flow
requirements, cannot declare dividends or incur additional indebtedness and has
annual capital expenditure limits. At December 31, 1999, the Company was not in
compliance with certain financial and operating covenants on the former line of
credit borrowings that were subsequently refinanced under the Credit Agreement.
12. Savings and Retirement Plan
The Company sponsors a 401(k) savings and retirement plan which is
available to all eligible employees. Under the plan, the Company may make a
discretionary matching contribution. Discretionary matching contributions were
approximately $99,000, $101,000 and $52,000 for the years ended December 31,
1999, 1998 and 1997, respectively.
F-22
<PAGE>
ELTRAX SYSTEMS, INC.
Notes to Consolidated Financial Statements
13. Segment Information
All of the Company's continuing operations operate in only one segment;
the Technology Services Group. The Technology Services Group consists of three
operating units:
. Technology Solutions, which provides strategic assessment,
application and network design, custom application development and
integration, network management, support and maintenance.
. Customer Care, which provides 7X24 help desk support and training
and installation services for the solutions the Company has developed and
implemented.
. Application Services Provider, which provides application outsourcing
and remote delivery of applications including network and application
management.
The following table reconciles services and products revenue and costs of
revenue to the consolidated statements of operations
<TABLE>
<CAPTION>
For the years ended December 31,
1999 1998 1997
------------ ------------ -----------
<S> <C> <C> <C>
Revenue:
Technology Services Group:
Services $ 24,256,843 $ 10,315,258 $ --
Products 37,427,809 42,289,457 49,934,139
------------ ------------ -----------
Total Technology Services Group revenue $ 61,684,652 $ 52,604,715 $49,934,139
============ ============ ===========
Cost of revenue:
Technology Services Group
Services $ 11,339,962 $ 6,409,692 $ --
Products 30,368,617 33,071,074 41,328,951
------------ ------------ -----------
Total Technology Services Group cost of revenue $ 41,708,579 $ 39,480,766 $41,328,951
============ ============ ===========
</TABLE>
F-23
<PAGE>
ELTRAX SYSTEMS, INC.
Notes to Consolidated Financial Statements
14. Cash Flow Data
Supplemental Cash Flow information is as follows:
<TABLE>
<CAPTION>
For the years Ended December 31,
1999 1998 1997
-------------------------------------------------------
<S> <C> <C> <C>
Non cash investing and financing
activities:
Common stock consideration for acquisitions:
Encore Group - issuance of 465,000 shares $ 2,139,000
Four Corners - issuance of 400,000 shares $ 1,885,000
Hi-Tech - issuance of 919,999 shares 3,091,965
DataComm - issuance of 488,000 shares 1,883,375
Telecom - issuance of 12,000 shares 46,331
Senercomm - issuance of 105,769 shares 500,000
Issuance of note payable as evidence of
severance liability 1,245,000
Issuance of warrants in exchange for services $ 24,000 30,000
--------
Issuance of stock to consultants and others 4,965 26,000 26,100
Change in unrealized gain (loss) on securities
held for sale (8,750) 9,605
Liabilities assumed in conjunction with business
acquisitions were:
Fair value of assets acquired $14,709,090 $12,519,419
Consideration paid 11,005,013 7,731,832
----------- -----------
Liabilities assumed $ 3,704,077 $ 4,787,587
=========== ===========
Supplemental disclosure of cash flow information:
Interest paid $743,035 $ 541,137 $ 673,202
======== =========== ===========
Income taxes paid $463,683 $ 307,703 $ 92,000
======== =========== ===========
</TABLE>
F-24
<PAGE>
ELTRAX SYSTEMS, INC.
SCHEDULE II-VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
Additions
---------------------------
Balance at Charged to Balance at
beginning costs and Allowances end of
Description of period expenses acquired Deductions period
----------- ------------- ------------ ----------- ---------- ------------
<S> <C> <C> <C> <C> <C>
Allowances for doubtful accounts:
1999 $(2,914,000) $(3,568,000) $ -- $5,439,000 $(1,043,000)
1998 (2,888,000) (1,639,000) (150,000) 1,763,000 (2,914,000)
1997 (2,590,000) (1,424,000) (151,000) 1,277,000 (2,888,000)
</TABLE>
F-25
