<PAGE> 1
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
Current Report
Pursuant to Section 13 or 15 (d) of
The Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): October 22, 1999
TECH ELECTRO INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
Texas
(State of other jurisdiction of incorporation)
0-27210 75-2408297
(Commission File Number) (IRS Employer Identification No.)
477 Madison Avenue
24th Floor
New York, New York 10022
(Address of principal executive officers)(Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (212) 583-0900
<PAGE> 2
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
On October 22, 1999, Tech Electro Industries, Inc, (the "Company")
acquired all of the issued and outstanding shares of capital stock (the
"Shares") of AlphaNet Hospitality Systems, Inc., a Delaware corporation
("AlphaNet") and certain intellectual property, copyrights and trademarks
utilized in AlphaNet's business (the "AlphaNet Property") from
PricewaterhouseCoopers, Inc., in its capacity as Trustee ("Trustee") of the
Estate of AlphaNet Telecom Inc. ("ATI"), a bankrupt, all as reflected and set
forth in that certain Bill of Sale dated as of August 31, 1999 between the
Company and the Trustee (the "Bill of Sale") and letter agreement between the
parties dated October 21, 1999 ("Letter Agreement"). ATI is a Canadian company
based in Toronto, Ontario.
As set forth in the Bill of Sale and Letter Agreement, the Company paid
to the Trustee for the Shares and the AlphaNet Property US $3,450,000, plus a
closing date extension fee of US $25,000 and a bridge loan fee of US $25,000 for
an aggregate price of US $3,500,000 (the "Purchase Price"). The Company paid the
Purchase Price to the Trustee, as follows:
(i) US $1,400,000 in cash;
(ii) Delivery of the Company's four- (4) month, non-interest
bearing promissory note payable to the Trustee in the
principal amount of US $2,100,000 (the "Note").
The Note is due and payable on February 21, 2000 and is secured by a
pledge of the Shares to the Trustee as evidenced by that certain Pledge
Agreement
Page 2
<PAGE> 3
dated October 21, 1999 between the Company and the Trustee (the "Pledge
Agreement".
The Bill of Sale, Letter Agreement, Note and Pledge Agreement are
attached hereto as Exhibits 2(a), 2(b), 2(c) and 2(d), respectively, and
incorporated by reference herein.
The Company negotiated the Purchase Price and terms of payment through
armslength negotiations with the Trustee. The Company reviewed and analysed
AlphaNet's assets, liabilities and historical financial statements (including
its ebitda) and in place management in determining the amount of the
consideration (Purchase Price) to pay for the Shares and the AlphaNet Property.
The Company raised the said US $1,400,000 cash that it paid to the
Trustee as part of the Purchase Price through the private placement sale of
2,036,364 shares of common stock of the Company and five-year warrants to
purchase a like number of shares of common stock, exercisable at US $0.75 per
share. The purchasers of these Company shares and warrants include a company
affiliated with William Tan, President of the Company.
The Company also arranged for a $2,525,000 one-year loan to AlphaNet to
pay existing AlphaNet indebtedness. The Company is now actively seeking
additional financing to pay off the Note and to refinance the said AlphaNet
$2,525,000 loan.
AlphaNet is a leading provider of in-room facsimile and unattended
business center services to hotels serving business travelers. AlphaNet has its
InnFax(R) facsimile installations in over 50,000 hotel rooms worldwide. AlphaNet
has installed The Office(TM), its unattended 24-hour hotel business center,
equipped
Page 3
<PAGE> 4
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS
(a) FINANCIAL STATEMENTS
AlphaNet Hospitality Systems, Inc.'s financial statements for the year
ended December 31, 1998 and the nine months ended September 30, 1999.
Page 4
<PAGE> 5
FINANCIAL STATEMENTS AND
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
ALPHANET HOSPITALITY SYSTEMS, INC.
SEPTEMBER 30, 1999 AND DECEMBER 31, 1998
F-1
<PAGE> 6
ALPHANET HOSPITALITY SYSTEMS, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS 3
FINANCIAL STATEMENTS
Balance Sheets 4
Statements of Operations 5
Statements of Stockholders' Equity (Deficit) 6
Statements of Cash Flows 7
NOTES TO FINANCIAL STATEMENTS 8
</TABLE>
F-2
<PAGE> 7
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Shareholders and Directors of
Alphanet Hospitality Systems, Inc.
We have audited the accompanying balance sheets of Alphanet Hospitality Systems,
Inc. as of September 30, 1999 and December 31, 1998, and the related statements
of operations, stockholders' equity (deficit) and cash flows for the nine-month
period ended September 30, 1999 and the year ended December 31, 1998. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with 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 Alphanet Hospitality Systems,
Inc. as of September 30, 1999 and December 31, 1998, and the results of its
operations and its cash flows for the nine-month period ended September 30, 1999
and the year ended December 31, 1998 in conformity with generally accepted
accounting principles.
KING GRIFFIN & ADAMSON P.C.
Dallas, Texas
November 11, 1999
F-3
<PAGE> 8
ALPHANET HOSPITALITY SYSTEMS, INC.
BALANCE SHEETS
September 30, 1999 and December 31, 1998
<TABLE>
<CAPTION>
ASSETS
September 30, December 31,
1999 1998
-------------- --------------
<S> <C> <C>
CURRENT ASSETS
Cash $ 405,765 $ 147,575
Accounts receivable, net of allowance for uncollectible
accounts of $316,836 in 1999 and $490,260 in 1998 1,547,784 1,319,945
Inventory 441,124 799,670
Deposits on inventory - 843,385
Prepaid expenses and other current assets 132,254 100,240
-------------- --------------
Total current assets 2,526,927 3,210,815
EQUIPMENT, NET 8,543,822 9,854,769
-------------- --------------
Total assets $ 11,070,749 $ 13,065,584
============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES
Current maturities of long-term debt $ 730,693 $ 505,560
Accounts payable 101,217 234,650
Accrued expenses 964,220 1,033,297
Current maturities of capital lease obligations 38,365 295,160
-------------- --------------
Total current liabilities 1,834,495 2,068,667
-------------- --------------
Long-term debt, less current maturities 1,573,021 1,465,692
Capital lease obligations, less current maturities - 19,474
Due to parent - 18,292,252
COMMITMENTS AND CONTINGENCIES (Note 6) - -
STOCKHOLDERS' EQUITY (DEFICIT)
Common stock, $.01 par value; 10,000 shares authorized,
10 issued and outstanding - -
Additional paid-in capital 18,234,741 10,000
Accumulated deficit (10,571,508) (8,790,501)
-------------- --------------
Total stockholders' equity (deficit) 7,663,233 (8,780,501)
-------------- --------------
Total liabilities and stockholders' equity (deficit) $ 11,070,749 $ 13,065,584
============== ==============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE> 9
ALPHANET HOSPITALITY SYSTEMS, INC.
STATEMENTS OF OPERATIONS
For the Nine Months Ended September 30, 1999 and
the Year Ended December 31, 1998
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
------------- -------------
<S> <C> <C>
NET REVENUES $ 6,883,390 $ 8,567,324
COST OF REVENUES (1,735,853) (1,346,817)
------------- -------------
GROSS PROFIT 5,147,537 7,220,507
OPERATING EXPENSES
Selling, general and administrative 3,266,856 5,543,705
Depreciation and amortization 3,357,174 4,264,909
------------- -------------
6,624,030 9,808,614
------------- -------------
(LOSS) FROM OPERATIONS (1,476,493) (2,588,107)
OTHER EXPENSE
Interest expense 290,595 151,542
Other 13,919 44,513
------------- -------------
304,514 196,055
------------- -------------
NET (LOSS) $ (1,781,007) $ (2,784,162)
============= =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE> 10
ALPHANET HOSPITALITY SYSTEMS, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
For the Nine Months Ended September 30, 1999 and
the Year ended December 31, 1998
<TABLE>
<CAPTION>
Additional
Common Stock Paid-in Accumulated
Shares Amount Capital Deficit Total
--------- ----------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Balances at January 1, 1998 10 $ - $ 10,000 $(6,006,339) $(5,996,339)
Net loss - - - (2,784,162) (2,784,162)
--------- ----------- --------------- --------------- ---------------
Balances at December 31, 1998 10 - 10,000 (8,790,501) (8,780,501)
Net loss - - - (1,781,007) (1,781,007)
Forgiveness of debt to parent - - 18,224,741 - 18,224,741
--------- ----------- --------------- --------------- ---------------
Balances at September 30, 1999 10,000 $ - $18,234,741 $(10,571,508) $ 7,663,233
========= =========== =============== =============== ===============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE> 11
ALPHANET HOSPITALITY SYSTEMS, INC.
STATEMENTS OF CASH FLOWS
For the Nine Months Ended September 30, 1999 and
the Year Ended December 31, 1998
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
-------------- --------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (1,781,007) $ (2,784,162)
Adjustments to reconcile net loss to net cash provided by
operating activities
Depreciation and amortization 3,357,174 4,264,909
Bad debt expense 337,988 477,938
Changes in assets and liabilities
Accounts receivable (565,827) (709,429)
Inventories 358,546 396,236
Deposits 843,385 (843,385)
Prepaid expenses and other current assets (32,014) (4,454)
Accounts payable (133,433) (29,294)
Accrued expenses (69,077) 190,726
-------------- --------------
Net cash provided by operating activities 2,315,735 959,085
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of equipment (2,046,227) (5,993,627)
CASH FLOWS FROM FINANCING ACTIVITIES
Payments on capital lease obligations (276,269) (360,300)
Payments on long-term debt (474,538) (410,762)
Proceeds from long-term debt 807,000 1,995,167
Net (decrease) increase due to parent (67,511) 3,759,609
-------------- --------------
Net cash (used in) provided by financing activities (11,318) 4,983,714
-------------- --------------
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS 258,190 (50,828)
CASH AND CASH EQUIVALENTS, beginning of period 147,575 198,403
-------------- --------------
CASH AND CASH EQUIVALENTS, end of period $ 405,765 $ 147,575
============== ==============
SUPPLEMENTAL DISCLOSURE OF CASH PAID FOR
Interest $ 291,000 $ 152,000
============== ==============
Income taxes $ - $ -
============== ==============
NON-CASH FINANCING ACTIVITIES
Forgiveness of due to parent $ 18,224,741 $ -
============== ==============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-7
<PAGE> 12
ALPHANET HOSPITALITY SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
September 30, 1999 and December 31,1998
1. NATURE OF OPERATIONS
Alphanet Hospitality Systems, Inc. (the "Company") was incorporated in the
state of Delaware in September 1991. The Company was formerly the
wholly-owned subsidiary of AlphaNet Telecom, Inc. (ATI), a publicly traded
Canadian company that filed for bankruptcy in February 1999. The Company's
hospitality business activities involve the development, marketing and
provision of specialized facsimile and other message and information
delivery services. These activities are carried on through the Company's
operations in the United States, as well as through the Company's
operations in Canada, and under license agreements in countries outside of
North America. The majority of the Company's operations are conducted in
the United States.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CASH AND CASH EQUIVALENTS. The Company considers all highly liquid
investments with a maturity of three months or less when purchased to be
cash equivalents.
ACCOUNTS RECEIVABLE. The Company extends unsecured credit in the normal
course of business to virtually all of its customers. Management has
provided an allowance for doubtful accounts which reflects its opinion of
amounts which may ultimately become uncollectible. In the event of
non-performance of accounts receivable, the maximum exposure to the Company
is the recorded amount shown on the balance sheet.
INVENTORIES. Inventories, which consist primarily of facsimile and computer
equipment, are stated at the lower of cost or net realizable value, with
cost being determined on a first-in, first-out basis.
EQUIPMENT. Equipment is recorded at cost. Equipment leased under capital
leases are included in equipment. Depreciation and amortization are
calculated on a straight-line basis over the estimated useful lives of the
assets or minimum lease term if shorter as follows:
<TABLE>
<CAPTION>
YEARS
-----
<S> <C>
Facsimile and business center equipment 4
Service platform 5 - 10
Furniture, fixtures and office equipment 5
</TABLE>
FOREIGN CURRENCY TRANSLATION. Monetary assets and liabilities denominated
in currencies other than the U.S. currency are translated into U.S. dollars
at the rate of exchange prevailing at the year-end. Revenues and expenses
are translated at the average exchange rate for the year. Realized and
unrealized foreign exchange gains and losses are included in income in the
year in which they occur.
INCOME TAXES. The Company accounts for income taxes in accordance with the
asset and liability method. Deferred income tax assets and liabilities are
computed annually for differences between the financial statement and tax
bases of assets and liabilities that will result in taxable or deductible
amounts in the future based on enacted tax laws and rates applicable to the
periods in which the differences are expected to affect taxable income.
Valuation allowances are established when necessary to reduce deferred tax
assets to the amount expected to be realized. Income tax expense is the tax
payable or refundable for the period plus or minus the change during the
period in deferred tax assets and liabilities.
F-8
<PAGE> 13
ALPHANET HOSPITALITY SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
September 30, 1999 and December 31,1998
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
REVENUE RECOGNITION. Revenue from services are recognized when services are
rendered.
CONCENTRATIONS. The Company maintains cash balances at banks, which may, at
times, exceed federally insured limits. However, management monitors these
balances and does not believe excess risk is present.
USE OF ESTIMATES. The preparation of financial statements in accordance
with generally accepted accounting principles requires management to make
assumptions that affect the reported amounts of certain assets,
liabilities, revenues, and expenses. Actual results could vary from the
estimates that were used in preparing the financial statements.
3. EQUIPMENT
Equipment consisted of the following at September 30, 1999 and December 31,
1998:
<TABLE>
<CAPTION>
1999 1998
-------------- -------------
<S> <C> <C>
Facsimile equipment and business center equipment $ 20,127,338 $ 18,544,798
Service platform 271,465 271,465
Furniture, fixtures and office equipment 814,526 768,562
Capital leases (facsimile equipment) 247,605 247,605
-------------- -------------
21,460,934 19,832,430
Less: Accumulated depreciation and amortization (12,917,112) (9,977,661)
-------------- -------------
$ 8,543,822 $ 9,854,769
============== =============
</TABLE>
Amortization of capital leases of approximately $46,000 and $62,000 is included
in depreciation and amortization for the nine month period ended September 30,
1999 and year ended December 31, 1998.
4. CAPITAL LEASE OBLIGATIONS
Future minimum annual lease payments under capital leases at September
30, 1999 are as follows:
<TABLE>
<S> <C>
Year ending September 30, 2000 $ 39,828
Less: Amount representing interest (1,463)
----------
Present value of net minimum lease payment $ 38,365
==========
</TABLE>
Interest rate on capitalized leases is 12.96% and is imputed based on the
lower of Company's incremental borrowing rate at the inception of each
lease or the lessor's implicit rate of return.
Obligations under capital leases are collateralized by certain facsimile
equipment.
F-9
<PAGE> 14
ALPHANET HOSPITALITY SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
September 30, 1999 and December 31,1998
5. DEBT
Long-term debt at September 30, 1999 and December 31, 1998 consists of the
following:
<TABLE>
<CAPTION>
1999 1998
------------ ------------
<S> <C> <C>
Installment note payable to leasing company,
due in monthly installments of $48,115, including
interest at 12.84%, maturing June 2002 $ 1,331,874 $ 1,590,225
Installment note payable to leasing company,
due in monthly installments of $7,720, including
interest at 12.86%, maturing June 2002 219,013 -
Installment note payable to leasing company,
due in monthly installments of $16,235, including
interest at 12.83%, maturing June 2002 460,737 -
Installment note payable to leasing company,
due in monthly installments of $3,695, including
interest at 14.50%, maturing June 2002 100,059 121,135
Installment note payable to leasing company,
due in monthly installments of $3,622, including
interest at 14.51%, maturing August 2002 102,857 123,021
Installment note payable to leasing company,
due in monthly installments of $3,004, including
interest at 14.52%, maturing October 2002 89,174 105,497
Installment note payable to leasing company,
due in monthly installments of $31,657, including
interest at 10.75%, maturing January 1999 - 31,374
------------ ------------
2,303,714 1,971,252
Less current maturities 730,693 505,560
------------ ------------
Long-term debt, less current maturities $ 1,573,021 $ 1,465,692
============ ============
</TABLE>
All the loans are collaterized by certain facsimile and computer equipment.
Principal payments on long-term debt at September 30, 1999 are as follows:
<TABLE>
<CAPTION>
Year ended September 30:
<S> <C>
2000 $ 730,693
2001 831,871
2002 738,184
2003 2,966
------------
$ 2,303,714
============
</TABLE>
F-10
<PAGE> 15
ALPHANET HOSPITALITY SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
September 30, 1999 and December 31,1998
6. COMMITMENTS AND CONTINGENCIES
The Company has entered into an agreement with a leasing company which
requires the Company to pay $5 per machine each month for two years, which
represents the estimated residual value at the end of a four-year leasing
contract. The Company paid the leasing company $151,145 in 1999 and
$133,517 in 1998. The future minimum payments under this agreement at
September 30, 1999 are as follows:
<TABLE>
<CAPTION>
Year ended September 30:
<S> <C>
2000 $ 166,693
2001 74,202
2002 34,860
2003 15,115
2004 7,660
Thereafter 6,635
----------
Total $ 305,165
==========
</TABLE>
7. INCOME TAXES
The components of income tax expense for the nine month period ended
September 30, 1999 and year ended December 31, 1998 are as follows:
<TABLE>
<CAPTION>
1999 1998
----------- ----------
<S> <C> <C>
Current expense $ - $ -
Deferred expense - -
----------- ----------
$ - $ -
=========== ==========
</TABLE>
A reconciliation of the normally expected federal income tax expense
(benefit) based on the U.S. Corporate income tax rate of 34% to actual
expense (benefit) for the nine month period ended September 30, 1999 and
year ended December 31, 1998 is as follows:
<TABLE>
<CAPTION>
1999 1998
------------ ------------
<S> <C> <C>
Expected income tax benefit $ 605,542 $ 946,615
Change in valuation allowance (332,126) (109,635)
Operating losses with no current tax benefit (278,967) (1,024,296)
Employee compensation expense not recorded
for book purposes - 145,355
State income tax expense (benefit) - 44,971
Other 5,551 (3,010)
------------ ------------
$ - $ -
============ ============
</TABLE>
F-11
<PAGE> 16
ALPHANET HOSPITALITY SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
September 30, 1999 and December 31,1998
7. INCOME TAXES (Continued)
The components of the deferred tax assets and liabilities as of September
30, 1999 and December 31, 1998 are as follows:
<TABLE>
<CAPTION>
1999 1998
------------- -------------
<S> <C> <C>
Depreciable assets $ (1,537,756) $ (1,063,517)
Bad debt allowance 110,893 171,591
Inventory reserve 15,750 -
Accrued liabilities 262,826 259,859
Net operating loss carryforwards 1,488,024 1,303,930
Valuation allowance (339,737) (671,863)
------------- -------------
Net deferred tax asset $ - $ -
============= =============
</TABLE>
The Company has net operating loss carryforwards of approximately
$4,250,000 at September 30, 1999 available to offset future taxable income
expiring in 2008 through 2019. A valuation allowance of approximately
$1,488,000 has been established to reduce the net deferred tax asset to
zero because it is likely that the tax asset will not be realized.
Realization is dependent on generating sufficient taxable income prior to
expiration of the loss carryforwards. Certain provisions of the tax law may
limit the net operating loss, capital loss and credit carryforwards
available for use in any given tax year in the event of a significant
change in ownership interest (See Note 9).
8. RELATED PARTY TRANSACTIONS
Effective August 30, 1999, ATI's trustee forgave amounts due to ATI from
the Company totaling $18,224,741. This amount has been recorded as
additional paid-in capital in the accompanying financial statements. This
amount arose from ATI providing working capital to the Company from 1995
through 1998. The amount was non-interest bearing and did not have specific
repayment terms.
The Company expensed $217,834 in the nine month period ended September 30,
1999 and $1,307,004 in the year ended December 31, 1998 for management fees
to ATI associated with a management agreement. The agreement was terminated
after ATI filed for bankruptcy in February 1999.
9. SUBSEQUENT EVENT
The Company was acquired by Tech Electro Industries, Inc., a publicly
traded entity, on October 22, 1999 for $6.025 million, which was comprised
of $1.4 million in cash, $2.1 million in a promissory note and the
assumption of debt of $2.525 million. The acquisition was accounted for
under the purchase method.
F-12
<PAGE> 17
(b) PRO FORMA FINANCIAL INFORMATION.
The unaudited pro forma condensed balance sheet of Tech Electro
Industries, Inc. (the "Company") and Alphanet Hospitality Services, Inc.
("Alphanet") as of September 30, 1999, reflects this acquisition as if it
had occurred on September 30, 1999. The acquisition has been accounted for
using the purchase method of accounting.
The unaudited pro forma condensed consolidated statements of operations
for the year ended December 31, 1998 and the nine months ended September
30, 1999 reflect the acquisition as if it had occurred on January 1, 1998.
The unaudited pro forma condensed consolidated balance sheet and
statements of operations should be read in conjunction with the separate
historical financial statements of the Company and Alphanet, and related
notes appearing elsewhere in this document. The pro forma financial
information is not necessarily indicative of the results that would have
been reported had such events actually occurred on the dates specified,
nor is it necessarily indicative of the future results of the combined
entities.
F-13
<PAGE> 18
TECH ELECTRO INDUSTRIES AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET (UNAUDITED)
September 30, 1999
<TABLE>
<CAPTION>
Tech Electro AlphaNet Pro-Forma
Industries, Inc. Hospitality Adjustments Pro-Forma
---------------- ------------- -------------- ------------
ASSETS
<S> <C> <C> <C> <C>
Current assets
Cash and cash equivalents $ 350,708 $ 405,765 $ - $ 756,473
Restricted cash 1,400,000 - (1,400,000)(C) -
Trade accounts receivable, net 2,471,745 1,547,784 - 4,019,529
Notes receivable 736,887 - - 736,887
Inventories, net of reserves 1,098,463 441,124 - 1,539,587
Prepaid expenses and other current assets 373,729 132,254 - 505,983
------------ ------------- -------------- ------------
Total current assets 6,431,532 2,526,927 (1,400,000) 7,558,459
------------ ------------- -------------- ------------
Property, plant, equipment, capitalized
software, net 282,929 8,543,822 - 8,826,751
Other assets
Note receivable 7,969 - - 7,969
Other 2,162 - - 2,162
------------ ------------- -------------- ------------
Total other assets 10,131 - - 10,131
------------ ------------- -------------- ------------
Total assets $ 6,724,592 $ 11,070,749 $ (1,400,000) $ 16,395,341
============ ============= ============== ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Capital lease obligations $ - $ 38,365 $ - $ 38,365
Purchase note payable - - 2,100,000(C) 2,100,000
Current portion of long-term debt 642,237 730,693 - 1,372,930
Trade accounts payable 1,211,668 101,217 - 1,312,885
Accrued liabilities 189,644 964,220 - 1,153,864
Deferred share subscriptions 1,430,000 - - 1,430,000
Deferred receivables 3,375 - - 3,375
Other liabilities 97,000 - - 97,000
------------ ------------- -------------- ------------
Total current liabilities 3,573,924 1,834,495 2,100,000 7,508,419
Long-term debt, net of current portion - 1,573,021 - 1,573,021
Negative goodwill - - 4,163,233 (A) 4,163,233
Stockholders' equity
Preferred stock 119,588 - - 119,588
Common stock 54,748 - - 54,748
Additional paid-in capital 11,356,316 18,234,741 (18,234,741) (B) 11,356,316
Accumulated deficit (8,379,984) (10,571,508) 10,571,508 (B) (8,379,984)
------------ ------------- -------------- ------------
Total stockholders' equity 3,150,668 7,663,233 (7,663,233) 3,150,668
------------ ------------- -------------- ------------
Total liabilities and stockholders' equity $ 6,724,592 $ 11,070,749 $ (1,400,000) $ 16,395,341
============ ============= ============== ============
</TABLE>
F-14
<PAGE> 19
TECH ELECTRO INDUSTRIES AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED)
Nine Months Ending September 30, 1999
<TABLE>
<CAPTION>
Tech Electro Alphanet Pro-Forma
Industries, Inc. Hospitality Adjustments Pro-Forma
--------------- -------------- ------------ --------------
<S> <C> <C> <C> <C>
Revenues $ 12,052,017 $ 6,883,390 $ - $ 18,935,407
Cost of revenues (9,681,974) (1,735,853) - (11,417,827)
-------------- -------------- ------------ --------------
Gross profit 2,370,043 5,147,537 - 7,517,580
Operating expenses (4,210,899) (6,624,030) - (10,834,929)
------------- ------------- ------------ --------------
Loss from operations (1,840,856) (1,476,493) - (3,317,349)
Other income (expense)
Interest expense (152,652) (290,595) - (443,247)
Interest income 47,574 - - 47,574
Amortization of negative goodwill - - 328,125 (D) 328,125
Other expense (2,170) (13,919) - (16,089)
------------- ------------- ------------ --------------
Total other expenses (107,248) (304,514) 328,125 (83,637)
------------- ------------- ------------ --------------
Loss before income tax provision (1,948,104) (1,781,007) 328,125 (3,400,986)
Income tax provision - - - -
------------- ------------- ------------ --------------
Net loss $ (1,948,104) $ (1,781,007) $ 328,125 $ (3,400,986)
============= ============= ============ =============
Loss attributable to common stock $ (1,987,523) $ (3,440,405)
============= =============
Per share data
Basic loss per share $ (0.39) $ (0.68)
Diluted loss per share $ (0.39) $ (0.68)
Weighted average number of common shares:
Basic common shares 5,050,140 5,050,140
Diluted common shares 5,050,140 5,050,140
</TABLE>
F-15
<PAGE> 20
TECH ELECTRO INDUSTRIES AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED)
Year Ended December 31, 1998
<TABLE>
<CAPTION>
Tech Electro Alphanet Pro-Forma
Industries, Inc. Hospitality Adjustments Pro-Forma
---------------- ------------- ----------- ---------------
<S> <C> <C> <C> <C>
Revenues $ 24,913,031 $ 8,567,324 $ - $ 33,480,355
Cost of revenues (17,588,858) (1,346,817) - (18,935,675)
-------------- ------------- ---------- ---------------
Gross profit 7,324,173 7,220,507 - 14,544,680
Operating expenses (11,815,134) (9,808,614) - (21,623,748)
-------------- ------------- ---------- ---------------
Loss from operations (4,490,961) (2,588,107) - (7,079,068)
Other income (expense)
Interest expense (684,120) (151,542) - (835,662)
Interest income 98,529 - - 98,529
Amortization of negative goodwill - - 437,500 (D) 437,500
Other income (expenses) 100,641 (44,513) - 56,128
-------------- ------------- ---------- ---------------
Total other expenses (484,950) (196,055) 437,500 (243,505)
-------------- ------------- ---------- ---------------
Loss before income tax provision (4,975,911) (2,784,162) 437,500 (7,322,573)
Income tax provision - - - -
-------------- ------------- ---------- ---------------
Net loss $ (4,975,911) $ (2,784,162) $ 437,500 $ (7,322,573)
============== ============= ========== ===============
Loss attributable to common stock $ (5,058,245) $ (7,404,907)
============== ===============
Per Share Data
Basic loss per share $ (1.26) $ (1.85)
Diluted loss per share $ (1.26) $ (1.85)
Weighted average number of common shares:
Basic common shares 4,012,377 4,012,377
Diluted common shares 4,012,377 4,012,377
</TABLE>
F-16
<PAGE> 21
NOTES TO PRO FORMA FINANCIAL STATEMENTS
1. Pro Forma Condensed Consolidated Balance Sheet
For purposes of determining the pro forma effect of the Alphanet
acquisition, the pro forma adjustments described below have been made on
the unaudited historical consolidated balance sheet of the Company.
<TABLE>
<S> <C> <C>
(A) Goodwill
Excess of the net assets acquired over the
consideration given for the acquisition of Alphanet $ 4,163,233
(B) Acquired Deficit
To eliminate Alphanet equity acquired
i Additional Paid-in Capital $ (18,234,741)
ii Retained Deficit $ 10,571,508
(C) Restricted Cash/Purchase Note Payable
To record cash paid and non-interest bearing
note payable issued in association with the
acquisition of Alphanet
i Restricted Cash $ (1,400,000)
ii Purchase Note Payable $ 2,100,000
</TABLE>
F-17
<PAGE> 22
2. Pro Forma Condensed Consolidated Statements of Operations
For purposes of determining the pro forma effect of the Alphanet
acquisition, the pro forma adjustments described below have been made on
the unaudited historical consolidated statements of operations of the
Company and Alphanet for the nine month period ended September 30, 1999,
and to the audited historical consolidated Statements of Operations of the
Company and Alphanet for the year ended December 31, 1998 as if the
acquisition had occurred as of January 1, 1998.
<TABLE>
<CAPTION>
Year ended Nine months ended
December 31, 1998 September 30, 1999
----------------- ------------------
<S> <C> <C>
(C) Amortization
Pro forma amortization of negative goodwill is calculated using
the straight-line method over an estimated useful life of 8 years
Amortization of negative goodwill recorded in connection with
the acquisition of Alphanet $ 437,500 $ 328,125
</TABLE>
F-18
<PAGE> 23
SIGNATURES
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.
Date: January 5, 2000 Tech Electro Industries, Inc.
By /s/ Julie Sansom-Reese
-----------------------------------
Julie Sansom-Reese
Chief Financial Officer
