US INTELLICOM, INC.
FINANCIAL STATEMENTS
FROM INCEPTION [MARCH 1, 1997] TO DECEMBER 31, 1997,
DECEMBER 31, 1999 AND 1998
<PAGE>
US INTELLICOM, INC.
TABLE OF CONTENTS
PAGE
Independent auditors' report 1
Financial statements:
Balance sheets 2
Statements of operations 3
Statements of stockholders' deficit 4
Statements of cash flows 5 - 6
Notes to financial statements 7 - 12
<PAGE>
HABIF, AROGETI & WYNNE, LLP
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
of US Intellicom, Inc.
We have audited the accompanying balance sheets of US INTELLICOM, INC. (a
Georgia Corporation) as of December 31, 1999 and 1998, and the related
statements of operations, stockholders' deficit, and cash flows for the years
ended December 31, 1999 and 1998, and from the date of inception [March 1, 1997]
to December 31, 1997. 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 audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of US INTELLICOM, INC. as of
December 31, 1999 and 1998, and the results of its operations, its stockholders'
deficit, and its cash flows for the years then ended December 31, 1999 and 1998,
and from the date of inception [March 1, 1997] to December 31, 1997, in
conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note K to the
financial statements, the company has suffered recurring losses from operations
and has a net capital deficiency, which raises substantial doubt about its
ability to continue as a going concern. Management's plans regarding those
matters are described in Note K. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
/s/ Habif, Arogeti & Wynne, LLP
Atlanta, Georgia
May 15, 2000, except with respect to matters discussed in Note L, as to which
the date is June 13, 2000.
1073 West Peachtree Street, N.E. Atlanta, Georgia 30309-3837
1
<PAGE>
<TABLE>
<CAPTION>
US INTELLICOM INC.
BALANCE SHEETS
DECEMBER 31,
ASSETS
1999 1998
----------------- -----------------
Current assets
<S> <C> <C>
Cash and cash equivalents $ 13,787 $ 858,765
Accounts receivable, net of an allowance of $0 197,807 3,636
Inventory 6,284 5,266
Prepaid expenses 1,917 -
Loan origination costs, net of accumulated amortization
of $16,500 and $0 at December 31, 1999 and 1998, respectively 16,500 -
----------------- -----------------
Total current assets 236,295 867,667
----------------- -----------------
Property and equipment, at cost
Office and warehouse equipment and furniture 80,260 32,971
Less accumulated depreciation (20,577) (17,585)
----------------- -----------------
59,683 15,386
----------------- -----------------
Deposits 1,250 1,250
----------------- -----------------
$ 297,228 $ 884,303
================= =================
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities
Accounts payable $ 137,969 $ 1,615
Accrued expenses 107,211 12,083
Customer deposits 299,384 55,907
Line-of-credit 1,204,356 578,979
Note payable - related party - 850,000
----------------- -----------------
Total current liabilities 1,748,920 1,498,584
----------------- -----------------
Stockholders' deficit
Common stock; no par value,
10,000,000 authorized, 1,300,000 and 1,308,333
issued and outstanding in 1999 and 1998, respectively 154,609 117,109
Stock subscription receivable (4,500) -
Accumulated deficit (1,601,801) (731,390)
----------------- -----------------
(1,451,692) (614,281)
----------------- -----------------
$ 297,228 $ 884,303
================= =================
</TABLE>
See auditors' report and accompanying notes
2
<PAGE>
<TABLE>
<CAPTION>
US INTELLICOM, INC.
STATEMENTS OF OPERATIONS
From the Date
of Inception
For the Years Ended [March 1, 1997] to
December 31, December 31,
1999 1998 1997
----------------- ------------------ -----------------
<S> <C> <C> <C>
Sales $ 1,413,282 $ 927,996 $ 719,381
Operating Expenses
Cost of goods and services 305,446 268,723 506,831
Selling, general and administrative
expenses 1,841,412 1,052,352 501,525
----------------- ------------------ -----------------
2,146,858 1,321,075 1,008,356
----------------- ------------------ -----------------
Loss from operations (733,576) (393,079) (288,975)
----------------- ------------------ -----------------
Other income (expenses)
Interest expense (136,095) (30,255) (21,309)
Interest income 100 - 150
Dividend income - 2,003 75
Loss on disposal of assets (840) - -
----------------- ------------------ -----------------
(136,835) (28,252) (21,084)
----------------- ------------------ -----------------
Net loss $ (870,411) $ (421,331) $ (310,059)
================= ================== =================
</TABLE>
See auditors' report and accompanying notes
3
<PAGE>
<TABLE>
<CAPTION>
US INTELLICOM, INC.
STATEMENTS OF STOCKHOLDERS' DEFICIT
FROM THE DATE OF INCEPTION [MARCH 1, 1997] TO DECEMBER 31, 1997 AND
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
Common Stock Stock
-------------------------- Subscription Accumulated
Share Amount Receivable Deficit Total
--------- ----------- ----------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Balance, March 1, 1997 -
Date of inception - $ - $ - $ - $ -
Issuance of common
stock 1,333,333 119,609 - - 119,609
Net Loss - - - (310,059) (310,059)
--------- ----------- ----------- ------------- -------------
Balance,
December 31, 1997 1,333,333 119,609 - (310,059) (190,450)
Repurchase and
retirement of
treasury stock (25,000) (2,500) - - (2,500)
Net loss - - - (421,331) (421,331)
--------- ----------- ----------- ------------- -------------
Balance,
December 31, 1998 1,308,333 117,109 - (731,390) (614,281)
Issuance of common
stock 45,000 4,500 (4,500) - -
Recapitalization
of common stock (53,333) 33,000 - - 33,000
Net loss - - - (870,411) (870,411)
--------- ----------- ----------- ------------- -------------
Balance,
December 31, 1999 1,300,000 $ 154,609 $ (4,500) $ (1,601,801) $ (1,451,692)
========= =========== =========== ============= =============
</TABLE>
See auditors' report and accompanying notes
4
<PAGE>
<TABLE>
<CAPTION>
US INTELLICOM, INC.
STATEMENTS OF CASH FLOWS
Increase (Decrease) In Cash and Cash Equivalents
From the Date
of Inception
For the Years Ended [March 1, 1997] to
December 31, December 31,
1999 1998 1997
------------------ ----------------- -----------------
Cash flows from operating activities
<S> <C> <C> <C>
Net loss $ (870,411) $ (421,331) $ (310,059)
------------------ ----------------- -----------------
Adjustments to reconcile net loss to net cash
provided used by operating activities
Depreciation 10,302 9,614 7,971
Amortization of loan origination costs 16,500 - -
Loss on disposal of property and equipment 840 - -
Changes in assets and liabilities
Accounts receivable (194,171) 80,804 46,540
Inventory (1,018) 183,090 (188,358)
Prepaid expenses (1,917) 18,750 (18,750)
Deposits - - (1,250)
Accounts payable 136,354 (21,963) 23,479
Accrued expenses 95,128 (20,992) 33,075
Customer deposits 243,477 55,907 -
------------------ ----------------- -----------------
Total adjustments 305,495 305,210 (97,293)
------------------ ----------------- -----------------
Net cash used by operating activities (564,916) (116,121) (407,352)
------------------ ----------------- -----------------
Cash flows from investing activities
Acquisition of property and equipment (55,439) (40) (4,324)
------------------ ----------------- -----------------
Cash flows from financing activities
Proceeds (payments on) from
note payable-related party (850,000) 850,000 -
Net proceeds from line-of-credit 625,377 71,161 360,701
Proceeds from (redemption of
issuance common stock - (2,500) 107,240
------------------ ----------------- -----------------
Net cash provided (used)
by financing activities (224,623) 918,661 467,941
------------------ ----------------- -----------------
Net increase (decrease) in cash
and cash equivalents (844,978) 802,500 56,265
Cash and cash equivalents, beginning of period 858,765 56,265 -
------------------ ----------------- -----------------
Cash and cash equivalents, end of period $ 13,787 $ 858,765 $ 56,265
================== ================= =================
</TABLE>
See auditors' report and accompanying notes
5
<PAGE>
<TABLE>
<CAPTION>
US INTELLICOM, INC.
STATEMENTS OF CASH FLOWS
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
From the Date
of Inception
For the Years Ended [March 1, 1997] to
December 31, December 31,
1999 1998 1997
------------------ ----------------- -----------------
Cash paid during the periods for
<S> <C> <C> <C>
Interest $ 77,019 $ 30,255 $ 21,309
SUPPLEMENTAL DISCLOSURES OF NON-CASH INVESTING ACTIVITIES
During 1999, the Company issued common stock to the shareholder's who personally
guaranteed the Company's line-of-credit. The Company therefore recorded, based
on the fair value of the stock, a loan origination cost in the amount of
$33,000, which is being amortized over a 1-year period resulting in $16,500 in
amortization expenses currently included in the Company's statement of
operations, for the year ended December 31, 1999.
During 1997, shareholders contributed assets net of liabilities of $12,369 to
the Company.
</TABLE>
See auditors' report and accompanying notes
6
<PAGE>
US INTELLICOM, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998 AND FROM THE DATE OF
INCEPTION [MARCH 1, 1997] TO DECEMBER 31, 1997
Note A
Summary of Significant Accounting Policies
Nature of Operations:
US INTELLICOM, INC. ( "the Company" or "Intellicom"), a Georgia corporation,
licenses software, which is used to manage airtime usage on prepaid cellular
telephones. Prior to December 31, 1998 the Company was a re-seller of wireless
handset hardware that contained the Company's software.
Use of Estimates:
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Estimates are used for, but not limited to, the accounting for doubtful
accounts, depreciation, and accrued expenses. Actual results could differ from
those estimates.
Cash and Cash Equivalents:
For the purpose of the statements of cash flows, the Company considers all
short-term debt securities purchased with a maturity of three months or less to
be cash equivalents.
Inventory:
Inventory includes goods for resale and is valued at the lower-of-cost or
market, with cost determined on the first-in, first-out method.
Property and Equipment:
Property and equipment are carried at cost. Expenditures for maintenance and
repairs are expensed currently, while renewals and betterments that materially
extend the life of an asset are capitalized. The cost of assets sold, retired,
or otherwise disposed of, and the related allowance for depreciation are
eliminated from the accounts, and any resulting gain or loss is included in
operations.
Depreciation is provided using straight-line method over the estimated useful
lives of the assets, which are as follows:
Office and warehouse equipment and furniture 3-5 years
7
<PAGE>
Revenue Recognition:
Revenue consists primarily of licensing fees, airtime ticket royalties, cellular
phone sales and post contract customer support. The Company accounts for
licensing fees revenue in accordance with the American Institute of Certified
Public Accountants' (AICPA) Statement of Position 97-2, "Software Revenue
Recognition," as follows:
License revenue Revenue from the license of software is
recognized after shipment of the product
and fulfillment of acceptance terms,
provided no significant obligations
remain and collection of the resulting
receivable is deemed probable.
Installation, consulting, When services are provided.
and education
Support contract Ratably over the life of the contract
from effective date.
Revenue from airtime royalties is recognized as the service is provided. Revenue
from phone sales is recognized at the time of delivery.
Income Taxes:
The Company elected to be taxed under the provisions of Subchapter S of the
Internal Revenue Code and similar provisions enacted by Georgia. Under those
provisions, The Company does not pay corporate income taxes on its income.
Instead, the stockholders are responsible for federal and Georgia individual
income taxes of the Company's income. As of April 4, 2000, the Company's S
corporation status was terminated [See Note J]
Software Development Costs:
The Company expenses research and development costs as incurred. Research and
development expenses for the years ended December 31, 1999, 1998, and 1997, are
approximately $167,000, $169,000, and $40,000, respectively and is included in
selling, general and administrative expenses. Statement of Financial Accounting
Standard No. 86 "Accounting for the costs of computer software to be sold,
leased or otherwise marketed" does not materially affect the Company.
Advertising:
The Company expenses all advertising costs as incurred. Advertising expenses for
the years ended December 31, 1999, 1998, and 1997, are $78,398, $0 and $0,
respectively.
8
<PAGE>
Note B
Uninsured Cash Balances and Cash Equivalents
The Company from time to time maintains cash deposits in excess of federally
insured limits. At December 31, 1999 and 1998, the Company had approximately $0
and $776,953, respectively, at risk. Cash and cash equivalents included $0 and
$526,953 of investments in money market funds as of December 31, 1999 and 1998,
respectively.
Note C
Accounts Receivable
Accounts receivable consist of the following:
1999 1998
------------- ------------
Customer trade receivables $ 197,807 $ 1,636
Employees - 2,000
------------- ------------
$ 197,807 $ 3,636
============= ============
The Company does not require its customers to pledge collateral to secure the
Company's accounts receivables. The amount at risk in the event of default by
the Company's customers is the entire accounts receivable balance.
Note D
Commitments and Contingencies
Operating Leases:
The Company leases office space, office equipment, and computer equipment under
operating lease agreements that expire on various dates through 2005. Rent
expenses on the office space and equipment were $79,489 and $58,373 for the
years ended December 31, 1999 and 1998, respectively.
At December 31, 1999, the minimum future lease payments under the non-cancelable
leases having initial terms in excess of one year are as follows:
2000 $ 82,456
2001 83,803
2002 83,098
2003 67,079
2004 69,093
Thereafter 23,257
---------------
$ 408,786
===============
9
<PAGE>
Note E
Line-of-Credit
The Company has a line-of-credit available, under which it may borrow up to
$1,600,000 and $1,000,000 at an interest rate of 2.30% over the lender's
commercial paper rate during 1999 and 1998. Additionally, the Company is
required to pay an additional 10% in interest to the guarantors of the debt
based on the average line-of-credit balance for the period, in which the
guarantors are at risk. The principal balance outstanding related in the line is
$1,204,356 and $578,979 at December 31, 1999 and 1998, respectively. The line is
also personally guaranteed by shareholders. The line is renewed annually and
expires on November 30, 2000. Subsequent to the year ended December 31, 1999,
the line-of-credit was paid off as part of the merger agreement with Pre-Cell
Solutions, Inc., [See Note J].
Note F
Economic Dependency
Major Customers:
A major customer is defined as one from whom 10% or greater of annual revenues
is derived. For the year ended December 31, 1999, sales to two customers were
approximately $996,120 and accounted for 70% of revenues. Included in accounts
receivable at December 31, 1999, was approximately $55,000 from these customers,
and included in customer deposits was $0 as of December 31, 1999.
For the year ended December 31, 1998, sales to two customers were $554,234 and
accounted for 60% of revenues. Included in accounts receivable at December 31,
1998, was $0 due from these customers. These customers had $55,907 on deposit at
December 31, 1998.
For the year ended December 31, 1997, sales to three customers were $256,691 and
accounted for 36% of revenues
Major Vendors:
A major vendor is defined as one who accounts for 10% or greater of cost of
goods and services. Total cost from one vender totaled $147,831 (48%), $183,090
(68%), and $416,204 (82%) for the years ended December 31, 1999, 1998, and 1997,
respectively.
Note G
Recapitalization of common stock
In 1999 the Company had a recapitalization of common stock. Under the
recapitalization three shareholders surrendered 383,333 shares of common stock.
Additionally 330,000 shares of common stock were issued to twelve new
shareholders in exchange for the new shareholders collateralizing the Company's
line of credit [See Note E]. The fair market value assigned to the personal
guarantees of the new shareholders was $.10 per share and as a result the
Company recorded loan origination costs and common stock in the amount of
$33,000 which is being amortized of the period of the personal guarantee.
10
<PAGE>
Note H
Litigation
On September 21, 1999, the Company was named as a defendant in two lawsuits
alleging patent infringement arising out of having made, used, offered for sale
and/or sold in the United States products, which infringe one or more claims of
Patent No. 5,631,947 and 5,577,100. The claim for monetary damages is
undeterminable. While any litigation or investigation has an element of
uncertainty, in the opinion of management and legal counsel, there is no
reasonable probability of any substantial liabilities arising out of this
matter. The Company is involved in various other lawsuits and litigation matters
on an ongoing basis as a result of day-to-day operations. However, the Company
does not believe that any of these other or any threatened lawsuits and
litigation matters will have a material adverse effect on the Company's
financial position or results of operations.
Note I
Stock Option Plan
The Company does not have a formal stock option plan adopted. The stock options
are granted based on recommendation from the compensation committee, and
verification by the board of directors. The options are to be granted at fair
market value or more. The options vest over five years and expire 10 years after
date of grant. At December 31, 1999, there were 5,000 options vested.
Weighted Average
Number of Exercise Price
Options Outstanding
Balance December 31, 1997 - $ -
Awarded 130,000 0.10
-------------- --------------
Balance December 31, 1998 130,000 0.10
Awarded 115,000 0.10
Exercised (45,000) 0.10
-------------- --------------
Balance December 31, 1999 200,000 $ 0.10
============== ==============
The Company uses APB Opinion 25, "Accounting for Stock Issued to Employees," and
related interpretations in accounting for options issued to employees.
An alternative method of accounting for stock options is Statement of Financial
Accounting Standards No. 123 (FAS 123) "Accounting for Stock-Based
Compensation." Under SFAS 123, employee stock options are valued at grant date
using the Black-Scholes valuation model, and compensation cost is recognized
ratably over the vesting period. SFAS 123 does not materially effect the
Company.
11
<PAGE>
Note J
Subsequent Events
On April 5, 2000, the stockholders of the Company effected a merger agreement
with Pre-Cell Solutions, Inc (Pre-Cell) (OTCBB:TDCM), whereby the Company was
merged into a subsidiary of Pre-Cell in a transaction accounted for as a
purchase by Pre-Cell.
All issued and outstanding shares of the Company were surrendered by the
stockholders in consideration for 11,440,000 shares of common stock of Pre-Cell.
Additionally, the merger agreement included a three-year employment agreement
between Pre-Cell and certain members of senior management of the Company, which
provides for an annual aggregate, escalating base salary starting at $350,000
and escalating to $400,000 in the third year with additional incentive
compensation as determined by the board of directors of Pre-Cell. It is the
opinion of management and legal counsel that this transaction qualifies as a
tax-free reorganization within the meaning of section 368(a) of the Internal
Revenue Code of 1986.
Note K
Going Concern
The Company has incurred operating losses of $870,411, $421,331 and $310,059 for
the years ended December 31, 1999, 1998 and 1997, respectively. Subsequent to
year end the Company merged with "Pre-Cell" TICKER: TDCM.OB, as described in
Note J. The Company expects the merger to improve the Company's liquidity
position by obtaining access to Pre-cell's cash reserves and improve cash flows
from operations. Management of Pre-cell intends to increase liquidity and raise
additional capital through the sale of equities and use the proceeds to fund
current operations and to acquire additional companies within the cellular
industry to strengthen the parent and subsidiaries liquidity position. In view
of the matters discussed in this footnote, there is substantial doubt about
Intellicom's ability to continue as a going concern. The recoverability of the
recorded assets and satisfaction of the liabilities reflected within the
accompanying balance sheet is dependent upon the continued operation of the
Company, which is dependent on the parent raising additional funds through sales
of equities and acquisition of related companies with stronger operations and
cash flows. There can be no assurance that management of Pre-cell will be
successful in implementing their plans.
Note L
Additional subsequent event
As of June 13, 2000, the Company lost in binding arbitration a judgement
relating to litigation between the Company and River Hawk Holdings. The company
was contesting the plaintiff's claim of a "success fee" relating to the sale of
the Company during 2000. The damages awarded to the plaintiff, totaling
$374,517, were based on the successful sale of the Company therefore no loss
contingency was accrued in the statements included herein. Management's
attorneys intend to advise Intellicom to dispute the arbitrators findings but no
assurances can be provided that the arbitrator's findings will be reversed.
12
