U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-------------------------------------------------
FORM 8-K-A
(Amendment No. 1 to Form 8-K Filed June 28, 1999)
CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
-------------------------------------------------
Date of Report (Date of earliest event reported): June 11, 1999
Commission File Number: 33-11795
RECOM MANAGED SYSTEMS, INC.
(Formerly Mt. Olympus Enterprises, Inc.)
Incorporated under the laws I.R.S. Employer Identification:
of the State of Delaware 87-0441351
Principal Executive Offices:
2412 Professional Drive
Roseville, CA 95661
Telephone: (916) 774-0953
Cover
<PAGE>
Item 2. Acquisition or Disposition of Assets
On June 11, 1999, the Company completed the acquisition (the
"Acquisition") of substantially all of the assets of Valley Networking, Inc.
("Valley"), a Sacramento, California based firm which is engaged primarily in
the selling of internet connectivity, computer hardware and software. Acquired
assets primarily included computer systems and technologies, equipment and
inventory. The Company intends to use the acquired assets to position itself as
a business-to-business ISP. By combining the new ISP services with its Web
application development, the Company can provide its clients with a full service
e-commerce solution. The purchase price of $294,050 was based on arm's length
negotiations between the Company and Valley. The Acquisition was financed with
(1) $25,000 of cash on hand, (2) $50,000 due to the seller upon the Company's
completion of an equity offering, (3) issuance of 5,000 shares of common stock,
and (4) a $212,800 amount due to Valley.
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits
(a) Financial Statements of Business Acquired.
The audited Financial Statements as of December 31, 1998 and for the
period from May 26, 1998 (date of inception) through December 31, 1998 together
with the independent auditors' report.
(b) Pro Forma Financial Information.
The pro forma Income Statement of Recom Managed Systems, Inc. for the
period from May 26, 1998 (date of Valley's inception; the Company's inception
date was July 31, 1998) through December 31, 1998 and for the six months ended
June 30, 1999 and the pro forma Balance Sheet at December 31, 1998 together with
notes.
(c) Exhibits.
The following documents were filed along with the Form 8-K (the
original Form 8-K) dated June 11, 1999 and filed with the Securities and
Exchange Commission on June 28, 1999.
Exhibit No. 2.1 Agreement of Purchase and Sale dated June 11, 1999
between Recom Managed Systems, Inc., Valley
Networking, Inc. and Scott Storer, the principal
stockholder of Valley
Signature
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Recom Managed Systems, Inc.
(Registrant)
Date: August 20, 1999 By: /s/ James D. Collins
--------------- ---------------------
James D. Collins
Chief Financial Officer
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<PAGE>
Item 7 (a) FINANCIAL STATEMENTS OF BUSINESS ACQUIRED
The following financial statements of Valley Networking, Inc. are
included in item 7 (a):
Page
----
Independent Auditors' Report.............................................. 3
Balance Sheet at December 31, 1998........................................ 4
Statement of Operations for the period from May 26, 1998 (date of inception)
through December 31, 1998................................................. 5
Statement of Stockholder's Deficit for the period from May 26, 1998 (date of
inception) through December 31, 1998...................................... 6
Statement of Cash Flows for the period from May 26, 1998 (date of inception)
through December 31, 1998................................................. 7
Notes to the Financial Statements......................................... 8
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<PAGE>
To the Board of Directors
RECOM Managed Systems, Inc.
Roseville, California
INDEPENDENT AUDITORS' REPORT
----------------------------
We have audited the balance sheet of VALLEY NETWORKING, INC. as of December 31,
1998, and the related statements of operations, stockholder's deficit and cash
flows for the period from May 26, 1998 (date of inception) through 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 audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of VALLEY NETWORKING, INC. as of
December 31, 1998, and the results of its operations and its cash flows for the
period from May 26, 1998 (date of inception) through December 31, 1998, in
conformity with generally accepted accounting principles.
/s/ Burnett, Umphress, & Company, LLP
Rancho Cordova, California
August 9, 1999
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<PAGE>
VALLEY NETWORKING, INC.
BALANCE SHEET
December 31, 1998
================================================================================
ASSETS
CURRENT ASSETS
Cash $ 5,154
Accounts receivable 26,630
Inventory 3,987
-------------
Total current assets 35,771
EQUIPMENT, net of accumulated depreciation of $8,000 87,141
OTHER ASSETS
Note receivable - stockholder $ 12,462
Deposit 1,625
-------------
Total other assets 14,087
-------------
Total assets $ 136,999
=============
LIABILITIES AND STOCKHOLDER'S DEFICIT
CURRENT LIABILITIES
Accounts payable $ 24,356
Accrued expenses 72,043
Unearned internet services revenue 14,977
Income taxes payable 6,200
-------------
Total current liabilities 117,576
LONG-TERM LIABILITIES
Note payable - related party 65,072
-------------
Total liabilities 182,648
STOCKHOLDER'S DEFICIT
Common stock, no par value,
100,000 shares authorized,
1,000 shares issued and outstanding $ 1,000
Retained deficit (45,649)
-------------
(44,649)
Less: Subscription receivable (1,000)
-------------
Total stockholder's deficit (45,649)
-------------
Total liabilities and stockholder's deficit $ 136,999
=============
The accompanying notes are an integral part of the financial statements.
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<PAGE>
VALLEY NETWORKING, INC.
STATEMENT OF OPERATIONS
For the Period From May 26, 1998 (Date of Inception) through December 31, 1998
================================================================================
REVENUES
Products $ 183,425
Customer support 40,925
Internet services, net of discounts of $9,708 78,242
Other operating revenue 1,200
---------
Total revenues 303,792
OPERATING EXPENSES
Advertising $ 1,116
Automotive 1,401
Communication services 29,887
Contract labor 15,295
Depreciation 8,000
Insurance 1,966
License fees 746
Miscellaneous 1,802
Office supplies and maintenance 9,411
Payroll and burden 86,835
Product costs 151,724
Publications 1,170
Rent 15,323
Shipping 3,102
Telephone 12,559
Travel 616
Utilities 1,317
---------
Total operating expenses 342,270
---------
LOSS FROM OPERATIONS (38,478)
OTHER EXPENSE
Bad debt expense (350)
Interest expense (621)
---------
Total other expense (971)
---------
Loss before taxes (39,449)
PROVISION FOR INCOME TAXES (6,200)
---------
NET LOSS $ (45,649)
=========
Net loss per common share $ (46)
=========
Weighted average number of common shares outstanding 1,000
=========
The accompanying notes are an integral part of the financial statements.
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<PAGE>
VALLEY NETWORKING, INC.
STATEMENT OF STOCKHOLDER'S DEFICIT
For the Period From May 26, 1998 (Date of Inception) through December 31, 1998
================================================================================
Common Stock Total
------------------ Subscription Retained Stockholder's
Shares Amount Receivable Deficit Deficit
-------------------------------------------------------
Balance, May 26, 1998
(Date of Inception) -0- $ -0- $ -0- $ -0- $ -0-
Stock issuance 1,000 1,000 -0- -0- 1,000
Less: Subscription
receivable -0- -0- (1,000) -0- (1,000)
Net loss -0- -0- -0- (45,649) (45,649)
-------------------------------------------------------
Balance,
December 31, 1998 1,000 $ 1,000 $ (1,000) $ (45,649) $ (45,649)
=======================================================
The accompanying notes are an integral part of the financial statements.
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<PAGE>
VALLEY NETWORKING, INC.
STATEMENT OF CASH FLOWS
For the Period From May 26, 1998 (Date of Inception) through December 31, 1998
================================================================================
RECONCILIATION OF NET LOSS TO NET CASH
PROVIDED BY OPERATING ACTIVITIES
Net loss $(45,649)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Depreciation $ 8,000
Bad debt expense 350
Increase in assets:
Accounts receivable (26,980)
Inventory (3,987)
Increase in liabilities:
Accounts payable 24,356
Accrued expenses 72,043
Unearned internet services revenue 14,977
Income taxes payable 6,200
--------
Total adjustments to reconcile net loss 94,959
--------
NET CASH PROVIDED BY OPERATING ACTIVITIES 49,310
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of equipment (30,069)
Advances on note receivable - stockholder (12,462)
Increase in deposits (1,625)
--------
Net cash used in investing activities (44,156)
--------
INCREASE IN CASH 5,154
CASH, May 26, 1998 (Date of Inception) -0-
--------
CASH, December 31, 1998 $ 5,154
========
The accompanying notes are an integral part of the financial statements.
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<PAGE>
VALLEY NETWORKING, INC.
NOTES TO THE FINANCIAL STATEMENTS
================================================================================
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Company's Activities - VALLEY NETWORKING, INC. ("the Company") was incorporated
in the state of California on May 26, 1998. The Company is engaged primarily in
the selling of internet connectivity, computer hardware and software. In
addition, the Company provides customer support throughout Northern California.
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. Actual results could differ from those estimates.
Accounting Basis for Recording Income - The Company uses the accrual method of
accounting for all transactions. Under the accrual method of accounting,
revenues are recognized when earned and expenses are recorded when incurred.
Cash and Cash Equivalents - For financial statement purposes, the Company
considers all highly liquid investments with original maturities of three months
or less to be cash equivalents.
Concentration of Credit Risk - Accounts receivable for three customers represent
approximately 65% of outstanding accounts receivable at December 31, 1998.
Inventory - Inventory consists of computer components, stated at lower of cost
(determined on the first-in, first-out method) or market.
Equipment - Equipment is recorded at cost and includes improvements that
significantly add to its productivity or extend its useful life. Costs of
maintenance and repairs are charged to expense. Upon retirement or disposal of
equipment, the costs and related depreciation are removed for the accounts, and
gain or loss, if any, is reflected in the earnings for both financial statement
and income tax reporting purposes. Depreciation is provided for using the
straight-line method. The estimated useful life used for calculating
depreciation for office equipment is five years.
Depreciation expense amounted to $8,000.
Unearned Internet Services Revenue - Unearned internet services revenue consists
of monthly and quarterly internet services revenue billed in advance.
Income Taxes - For income tax purposes, the Company reports income on the
accrual method of accounting.
Straight-line and accelerated depreciation is used for tax reporting purposes.
Assets purchased after December 31, 1986, are subject to modified accelerated
cost recovery system (MACRS) rules under the guidelines of the Tax Reform Act of
1986 (TRA 86).
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<PAGE>
VALLEY NETWORKING, INC.
NOTES TO THE FINANCIAL STATEMENTS
================================================================================
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Continued
Deferred income taxes are recorded using the asset and liability method of
accounting for income taxes. Under the asset and liability method, deferred tax
assets and liabilities are recognized for the estimated future tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases. Significant
differences between financial statement and the tax bases for the Company are in
the recording of depreciation, inventory, accruals and deferred revenue.
Deferred tax assets and liabilities are measured using enacted tax rates in
effect for the year in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period of enactment.
Alternative minimum tax and alternative minimum tax credits as required by TRA
86, if necessary, are included in both current and deferred tax provisions.
Alternative minimum tax and subsequent credits can arise from book and tax
differences in accounting for long-term contracts, depreciation and other
miscellaneous items.
2. NOTE RECEIVABLE - STOCKHOLDER
The note receivable - stockholder consists of an unsecured amount advanced to
the Company's sole stockholder. The amount bears interest at 7% per annum,
receivable annually and is due December 31, 2000.
3. NOTE PAYABLE - RELATED PARTY
The note payable - related party consists of an unsecured amount due to
Intellinet, Inc., which is also owned by the Company's sole stockholder. The
note accrues interest at 7% per annum, payable annually and is due December 31,
2000.
4. SUBSCRIPTION RECEIVABLE
Subscription receivable consists of an unsecured amount due from the Company's
sole stockholder in exchange for 1,000 shares of common stock. The amount bears
interest of 7% per annum, receivable annually and is due December 31, 2000.
5. PROVISION FOR INCOME TAXES
The provision for income taxes consists of current expenses of $6,200.
The expected Federal income tax benefit, computed based on the Company's pre-tax
losses in 1998 and the statutory Federal income tax rate, is reconciled to the
actual tax benefit reflected in the accompanying financial statements as
follows:
Expected tax benefit at federal statutory rates $ (6,000)
Expected state tax benefit (3,900)
Decrease resulting from valuation allowance for
benefits from accrued payroll and other 16,100
---------------
Total income tax expense $ 6,200
===============
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<PAGE>
VALLEY NETWORKING, INC.
NOTES TO THE FINANCIAL STATEMENTS
================================================================================
5. PROVISION FOR INCOME TAXES, Continued
Deferred income taxes as of December 31, 1998 consist of the following tax
benefits (liabilities) attributable to:
Depreciation $ (2,800)
Unearned internet services revenue 3,600
Inventory valuation 2,600
Accrued payroll and burden 12,100
Other 600
----------------
Net deferred tax asset 16,100
Less valuation allowance (16,100)
----------------
Total deferred tax asset $ -0-
================
The valuation allowance is provided to reduce the deferred tax asset to a level
which, more likely than not, will be realized.
6. RELATED PARTY TRANSACTIONS
The sole stockholder of the Company is also the sole stockholder of Intellinet,
Inc. During the period from May 26, 1998 (date of inception) through December
31, 1998, the Company purchased $74,626 of office equipment and $8,090 of
inventory from Intellinet, Inc.
7. COMMITMENT
In August 1998, the Company entered into a sales agreement with Pacific Bell
Internet Services ("PBI") in which PBI will provide the Company with internet
access services. The sales agreement requires the Company to pay PBI $907 per
month and expires in July 2001.
The schedule of future minimum payments required under the above agreement is as
follows:
Year Ending December 31: Amount
------------------------ ----------------
1999 $ 10,884
2000 10,884
2001 6,349
----------------
$ 28,117
================
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<PAGE>
VALLEY NETWORKING, INC.
NOTES TO THE FINANCIAL STATEMENTS
================================================================================
8. SUPPLEMENTAL DISCLOSURES OF CASH FLOWS INFORMATION
Supplemental disclosures of cash flows information:
Cash paid during the year for:
Interest $ 621
================
Taxes $ -0-
================
Non-cash investing and financing activities consist of office equipment
purchased through a related party note payable of $65,072 (See Note 6). Also,
common stock of $1,000 was issued in exchange for a subscription receivable (See
Note 4).
9. SUBSEQUENT EVENT
On June 11, 1999, RECOM Managed Systems, Inc. ("RMSI") purchased the Company's
customer list, equipment and inventory in exchange for $25,000 cash, a $262,800
promissory note and 5,000 shares of RMSI common stock.
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<PAGE>
Item 7 (b) PRO FORMA FINANCIAL INFORMATION
The following unaudited pro forma financial statements give effect to
the acquisition of Valley as though the transaction occurred as of May 26, 1998
(date of Valley's inception; the Company's inception date was July 31, 1998) for
the pro forma Statement of Operations and pro forma Balance Sheet as of December
31, 1998; and as of January 1, 1999 for the pro forma Statement of Operations
for the six months ended June 30, 1999.
The pro forma financial information reflects pro forma adjustments that
are based upon available information and which the Company believes are
reasonable. The pro forma financial information does not necessarily reflect the
results of operations or financial position of the Company that actually would
have resulted had the transactions to which pro forma effect is given been
consummated as of the date or for the period indicated.
<TABLE>
Recom Managed Systems, Inc. ("RMSI")
Unaudited Pro Forma Statement of Operations
For the Period from May 26, 1998 through December 31, 1998
<CAPTION>
Pro Forma
RMSI Valley Adjustments Pro Forma
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues:
Information technology services $ 79,292 $ 303,792 $ -- $ 383,084
Cost of revenues:
Information technology services 51,540 342,620 -- 394,160
----------- ----------- ----------- -----------
Gross profit ....................... 27,752 (38,828) -- (11,076)
----------- ----------- ----------- -----------
Operating expenses:
Development ................... -- -- -- --
Marketing and selling ......... 23,757 -- -- 23,757
General and administrative .... 75,899 -- 7,807(a) 83,706
----------- ----------- ----------- -----------
Total operating expenses ........... 99,656 -- 7,807 107,463
----------- ----------- ----------- -----------
Operating loss ..................... (71,904) (38,828) (7,807) (118,539)
Interest expense ................... 7,257 621 15,714(b) 23,592
----------- ----------- ----------- -----------
Loss before income taxes ........... (79,161) (39,449) (23,521) (142,131)
Provision for income taxes ......... -- 6,200 -- 6,200
----------- ----------- ----------- -----------
Net loss ........................... $ (79,161) $ (45,649) $ (23,521) $ (148,331)
=========== =========== =========== ===========
Basic and diluted loss per share ... $ (0.03) -- -- $ (0.06)
=========== =========== =========== ===========
Basic and diluted weighted average
number of shares outstanding .... 2,361,471 -- 5,000(c) 2,366,471
=========== =========== =========== ===========
</TABLE>
Notes to Unaudited Pro Forma Statement of Operations
For the Period from May 28, 1998 through December 31, 1998
Note 1 - The pro forma statement of operations gives effect to the following pro
forma adjustments necessary to reflect the acquisition:
(a) Adjustment to record amortization of goodwill from May 26, 1998 through
December 31, 1998.
(b) Adjustment to record interest expense from May 26, 1998 through December 31,
1998.
(c) Adjustment for the issuance of common stock in connection with the
acquisition.
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<PAGE>
<TABLE>
Recom Managed Systems, Inc. ("RMSI")
Unaudited Pro Forma Statement of Operations
For the Six Months Ended June 30, 1999
<CAPTION>
Pro Forma
RMSI Valley Adjustments Pro Forma
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues:
Information technology services $ 339,357 $ 318,159 $ -- $ 657,516
Cost of revenues:
Information technology services 217,714 290,032 -- 507,746
----------- ----------- ----------- -----------
Gross profit ....................... 121,643 28,127 -- 149,770
----------- ----------- ----------- -----------
Operating expenses:
Development ................... 263,907 -- -- 263,907
Marketing and selling ......... 111,889 -- -- 111,889
General and administrative .... 254,475 -- 6,691(a) 261,166
----------- ----------- ----------- -----------
Total operating expenses ........... 630,271 -- 6,691 636,962
----------- ----------- ----------- -----------
Operating loss ..................... (508,628) 28,127 (6,691) (487,192)
Interest expense ................... 9,422 1,183 13,893(b) 24,498
----------- ----------- ----------- -----------
Loss before income taxes ........... (518,050) 26,944 (20,584) (511,690)
Provision for income taxes ......... -- -- -- --
----------- ----------- ----------- -----------
Net loss ........................... $ (518,050) $ 26,944 $ (20,584) $ (511,690)
=========== =========== =========== ===========
Basic and diluted loss per share ... $ (0.17) -- -- $ (0.17)
=========== =========== =========== ===========
Basic and diluted weighted average
number of shares outstanding .... 2,975,580 -- 5,000(c) 2,980,580
=========== =========== =========== ===========
</TABLE>
Notes to Unaudited Pro Forma Statement of Operations
For the Six Months Ended June 30, 1990
Note 1 - The pro forma statement of operations gives effect to the following pro
forma adjustments necessary to reflect the acquisition:
(a) Adjustment to record amortization of goodwill from January 1, 1999 through
June 30, 1999.
(b) Adjustment to record interest expense from January 1, 1999 through June 30,
1999.
(c) Adjustment for the issuance of common stock in connection with the
acquisition.
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<PAGE>
<TABLE>
Recom Managed Systems, Inc. ("RMSI")
Unaudited Pro Forma Balance Sheet
As of December 31, 1998
<CAPTION>
Pro Forma
RMSI Valley Adjustments Pro Forma
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Assets
Current assets:
Cash .................................................. $ 23,855 $ 5,154 $ (5,154)(a) $ 23,855
Accounts receivable ................................... 53,766 26,630 (26,630)(a) 53,766
Deferred offering costs ............................... 21,686 -- -- 21,686
Other current assets .................................. -- 3,987 -- 3,987
--------- --------- --------- ---------
Total current assets .................................. 99,307 35,771 (31,784) 103,294
Property and equipment, net ................................ 13,678 87,141 -- 100,819
Goodwill, net .............................................. -- -- 195,115(b)(c) 195,115
Other assets ............................................... -- 14,087 (14,087)(a) --
--------- --------- --------- ---------
Total assets ....................................... $ 112,985 $ 136,999 $ 149,244 $ 399,228
========= ========= ========= =========
Liabilities and Stockholders' Equity (Deficit)
Current liabilities:
Accounts payable ...................................... $ 10,006 $ 24,356 $ (24,356)(a) $ 10,006
Accrued professional fees ............................. 62,789 -- -- 62,789
Accrued payroll, bonuses and benefits ................. 22,500 72,043 (72,043)(a) 22,500
Due to related party .................................. 81,989 -- -- 81,989
Unearned revenue ...................................... -- 14,977 (14,977)(a) --
Other accrued expenses ................................ 7,257 6,200 9,514(a)(c) 22,971
Line of credit ........................................ -- -- 25,000(b) 25,000
Notes payable to stockholders ......................... 190,000 -- 189,406(b) 379,406
--------- --------- --------- ---------
Total current liabilities .......................... 374,541 117,576 112,544 604,661
Notes payable to stockholders, excluding current portion ... -- 65,072 8,322(a)(b) 73,394
--------- --------- --------- ---------
Total liabilities .................................. 374,541 182,648 120,866 678,055
--------- --------- --------- ---------
Stockholders' equity (deficit):
Common stock .......................................... 2,605 1,000 (995)(a)(b) 2,610
Additional paid in capital ............................ -- -- 6,245 (b) 6,245
Subscription receivable ............................... -- (1,000) 1,000 (a) --
Accumulated deficit ................................... (264,161) (45,649) 22,128 (a)(c) (287,682)
--------- --------- --------- ---------
Total stockholders' equity (deficit) ............... (261,556) (45,649) 28,378 (278,827)
--------- --------- --------- ---------
Total liabilities and stockholders' equity (deficit) $ 112,985 $ 136,999 $ 149,244 $ 399,228
========= ========= ========= =========
</TABLE>
Notes to Unaudited Pro Forma Balance Sheet
As of December 31, 1998
Note 1 - The pro forma balance sheet has been prepared to reflect the
acquisition of computer systems and technologies, equipment and inventory of
Valley for an aggregate purchase price of approximately $294,050. Pro forma
adjustments are made to reflect:
(a) Adjustment to eliminate assets and liabilities of Valley not purchased or
assumed.
(b) Adjustment to record the purchase accounting, including goodwill, debt
incurred and equity issued.
(c) Adjustment to reflect accumulated amortization and interest expense.
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