<PAGE>
Exhibit 99.3
STRATEGIC NETWORK DESIGNS, INC.
For the Years Ended
December 31, 1999 and 1998
Page
----
Independent Auditors' Report 1
Balance Sheets 2
Statements of Operations 3
Statement of Stockholders' Equity 4
Statements of Cash Flows 5
Notes to Financial Statements 6 - 12
<PAGE>
Independent Auditors' Report
To the Stockholders and Board of Directors
Strategic Network Designs, Inc.
We have audited the accompanying balance sheets of Strategic Network Designs,
Inc. as of December 31, 1999 and 1998, and the related statements of operations,
stockholders' equity, and cash flows for the years then ended. 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 Strategic Network Designs,
Inc., as of December 31, 1999 and 1998, and the results of its operations and
its cash flows for the years then ended in conformity with generally accepted
accounting principles.
AMPER, POLITZINER & MATTIA P.A.
AMPER, POLITZINER & MATTIA P.A.
March 10, 2000
Edison, New Jersey
<PAGE>
STRATEGIC NETWORK DESIGNS, INC.
Balance Sheets
December 31,
<TABLE>
<CAPTION>
1999 1998
---------- ----------
<S> <C> <C>
Assets
Current assets
Cash $ 248,023 $ 82,656
Accounts receivable, net of allowance of
$60,000 and $-0- 3,190,607 1,159,359
Prepaid expenses and other current assets 99,616 95,546
---------- ----------
3,538,246 1,337,561
Property and equipment, net 428,372 391,070
Security deposits 12,304 12,304
---------- ----------
$3,978,922 $1,740,935
========== ==========
Liabilities and Stockholders' Equity
Current liabilities
Note payable $ - $ 300,000
Current maturities of long-term debt 69,987 41,600
Accounts payable and accrued expenses 945,031 221,785
Customer deposits 67,395 70,411
Deferred revenue 462,302 230,956
Pension payable 103,598 80,520
Income tax payable 40,544 -
---------- ----------
1,688,857 945,272
Long-term debt, net of current maturities 56,250 44,899
---------- ----------
1,745,107 990,171
---------- ----------
Stockholders' equity
Common stock, 2,000,000 shares authorized,
1,000,000 Series A and 155,380 and -0- Series B
shares issued and outstanding, no par value 676,526 18,792
Additional paid in capital 43,113 43,113
Retained earnings 1,960,695 691,490
Deferred stock-based compensation (446,519) -
Treasury stock - at cost - (2,631)
---------- ----------
Total stockholders' equity 2,233,815 750,764
---------- ----------
$3,978,922 $1,740,935
========== ==========
</TABLE>
See accompanying notes to financial statements.
-2-
<PAGE>
STRATEGIC NETWORK DESIGNS, INC.
Statements of Operations
For the Years Ended December 31,
<TABLE>
<CAPTION>
1999 1998
----------- ----------
<S> <C> <C>
Net sales $11,680,255 $6,461,834
Cost of sales 5,505,979 3,195,062
----------- ----------
Gross profit 6,174,276 3,266,772
Operating expenses 3,919,449 2,676,548
----------- ----------
Income before interest income and
provision for income taxes 2,254,827 590,224
Interest income 16,378 14,004
----------- ----------
Income before provision for income taxes 2,271,205 604,228
Provision for income taxes 52,000 13,134
----------- ----------
Net income $ 2,219,205 $ 591,094
=========== ==========
</TABLE>
See accompanying notes to financial statements.
-3-
<PAGE>
STRATEGIC NETWORK DESIGNS, INC.
Statement of Stockholders' Equity
For the Years Ended December 31,
<TABLE>
<CAPTION>
Common Stock
--------------------------------- Additional Deferred
Shares Shares Paid in Retained Stock-based Treasury
Series A Series B Amount Capital Earnings Compensation Stock Total
--------- -------- ------------ -------- ------------ ------------ --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance - December 31, 1997 87 - $ 18,792 $43,113 $ 850,396 $ - $(2,631) $ 909,670
Net income - - - - 591,094 - - 591,094
Stockholders' distributions - - - - (750,000) - - (750,000)
--------- ------- ------------ -------- ---------- --------- ----------- ----------
Balance - December 31, 1998 87 - 18,792 43,113 691,490 - (2,631) 750,764
Net income - - - - 2,219,205 - - 2,219,205
Retirement of treasury stock - - (2,631) - - - 2,631 -
Effect of 11,494.252873-for
one-stock split 999,913 - - - - - - -
Deferred stock-based
compensation - 155,380 660,365 - - (660,365) - -
Amortization of deferred
stock-based compensation - - - - - 213,846 - 213,846
Stockholders' distributions - - - - (950,000) - - (950,000)
--------- ------- ------------ -------- ---------- --------- ----------- ----------
Balance - December 31, 1999 1,000,000 155,380 $676,526 $43,113 $1,960,695 $(446,519) $- $2,233,815
========= ======= ============ ======== ========== ========= =========== ==========
</TABLE>
See accompanying notes to financial statements.
-4-
<PAGE>
STRATEGIC NETWORK DESIGNS, INC.
Statements of Cash Flows
For the Years Ended December 31,
<TABLE>
<CAPTION>
1999 1998
------------ ----------
<S> <C> <C>
Cash flows from operating activities
Net income $ 2,219,205 $ 591,094
----------- ---------
Adjustments to reconcile net income to net cash
from operating activities
Stock-based compensation 213,846 -
Depreciation 193,354 179,547
Bad debt expense 60,000 -
(Increase) decrease in
Accounts receivable (2,091,248) (179,602)
Prepaid expenses and other current assets (4,070) (69,881)
Other - (9,844)
Increase (decrease) in
Accounts payable and accrued expenses 723,246 49,732
Customer deposits (3,016) 70,411
Deferred revenue 231,346 (33,047)
Pension payable 23,078 29,460
Income tax payable 40,544 -
----------- ---------
Total adjustments (612,920) 36,776
----------- ---------
1,606,285 627,870
----------- ---------
Cash flows from investing activities
Payments for property and equipment (230,656) (252,385)
----------- ---------
(230,656) (252,385)
----------- ---------
Cash flows from financing activities
(Payments of) proceeds from note payable (300,000) 214,900
Principal payments of long-term debt (60,262) (38,501)
Proceeds from long-term debt 100,000 -
Stockholders' distributions (950,000) (750,000)
----------- ---------
(1,210,262) (573,601)
----------- ---------
Net change in cash 165,367 (198,116)
Cash - beginning 82,656 280,772
----------- ---------
Cash - ending $ 248,023 $ 82,656
=========== =========
Supplemental disclosure of cash paid
Interest $ 21,051 $ 22,218
Income taxes - 55,983
</TABLE>
See accompanying notes to financial statements.
-5-
<PAGE>
Note 1 - Summary of Significant Accounting Policies
------------------------------------------
Operations
----------
Strategic Network Designs, Inc. (the "Company") is a project consulting firm
specializing in customer relationship management ("CRM") systems and e-commerce
enablement through sales force automation. Among the Company's core
competencies are building technology solutions for complex remote and mobile
sales organizations of corporate customers located throughout the United States.
Services offered include technology consulting, application design, application
development, systems integration, and operational support. The Company
maintains its headquarters in Clark, New Jersey. Credit is granted to
substantially all customers.
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.
Revenue Recognition
-------------------
The Company's revenue is primarily from consulting services. Revenue is
recognized as services are performed and costs are incurred at contracted rates.
Revenue from product sales is recognized when the goods are delivered.
Property and Equipment
----------------------
Property and equipment is stated at cost less accumulated depreciation.
Depreciation is provided over the estimated useful lives of the assets as
follows:
Estimated
Method Useful Life
----------------- -----------
Office equipment Declining balance 5 years
Leasehold improvements Straight line 5 years
Furniture and fixtures Declining balance 7 years
Internal-use software Straight line 3 years
Income Taxes
------------
The Company has elected to be taxed as a S-Corporation for federal and state tax
purposes. Under this election substantially all of the profits, losses, credits,
and deductions of the Company are passed through to the individual stockholders.
Stock Compensation Plan
-----------------------
The Company has elected to follow Accounting Principals Board Opinion No. 25,
"Accounting for Stock Issued to Employees" (APB 25) and related interpretations
in accounting for its
-6-
<PAGE>
STRATEGIC NETWORK DESIGNS, INC.
Notes to Financial Statements
employee stock compensation. Under this method, compensation cost is measured as
the amount by which the market price of the underlying stock exceeds the cash
received for the stock.
-7-
<PAGE>
STRATEGIC NETWORK DESIGNS, INC.
Notes to Financial Statements
Note 1 - Summary of Significant Accounting Policies - (continued)
------------------------------------------
Cost of Computer Software Developed for Internal Use
----------------------------------------------------
As of January 1, 1998, the Company adopted Statement of Position 98-1 ("SOP
98-1"), "Accounting for the Costs of Computer Software Developed or Obtained
for Internal Use." SOP 98-1 provides guidance on when costs incurred for
internal-use software are, and are not, capitalized.
Advertising Costs
-----------------
Advertising costs are expensed as incurred. Such expense for the years ended
December 31, 1999 and 1998, was $81,599 and $45,689, respectively.
Reclassifications
-----------------
Certain reclassifications have been made to prior years statement of
operations in order to conform to the current year presentation.
Note 2 - Concentration of Cash Balance
-----------------------------
At December 31, 1999 and 1998, cash balances of $581,910 and $119,938,
respectively, were maintained in a bank account insured by the Federal Deposit
Insurance Corporation (FDIC). These balances exceed the insured amount of
$100,000.
Note 3 - Property and Equipment
-----------------------
December 31,
1999 1998
---- ----
Office equipment $ 707,451 $ 569,066
Leasehold improvements 43,273 17,800
Furniture and fixtures 240,412 173,614
Internally developed software 115,091 115,091
---------- ---------
1,106,227 875,571
Accumulated depreciation (677,855) (484,501)
---------- ---------
Property and equipment $ 428,372 $ 391,070
========== =========
Depreciation expense was $193,354 and $179,547 for the years ended December
31, 1999 and 1998, respectively.
Note 4 - Note Payable
------------
The Company has a line of credit of $750,000. Borrowings under the line of
credit bear interest at prime and are due on demand. The line of credit
expires March 31, 2000, is collateralized by substantially all assets of the
Company, and is personally guaranteed by the stockholders. The note payable
has requirements for maintaining various financial ratios, including a minimum
debt service coverage ratio of 1.25 and a maximum leverage ratio of 3.0.
-8-
<PAGE>
STRATEGIC NETWORK DESIGNS, INC.
Notes to Financial Statements
The prime rate at December 31, 1999 and 1998, was 8.50% and 7.75%, respectively.
-9-
<PAGE>
STRATEGIC NETWORK DESIGNS, INC.
Notes to Financial Statements
Note 5 - Long-term Debt
--------------
December 31,
1999 1998
-------- -------
Note payable to a bank through January 2001,
payable at $3,931 per month including interest
at 8.25%, collateralized by substantially all
assets of the Company, and personally guaranteed
by the stockholders. The long-term debt
agreement has requirements for maintaining
various financial ratios, including a minimum
debt service coverage ratio of 1.25 and a
maximum leverage ratio of 3.0. $ 44,987 $86,499
Note payable to a bank through March 2003,
payable at $2,083 per month plus interest
at the bank's prime rate plus 0.25%,
collateralized by substantially all assets of
the Company, and personally guaranteed by
the stockholders. The long-term debt
agreement has requirements for maintaining
various financial ratios, including a minimum
debt service coverage ratio of 1.25 and a
maximum leverage ratio of 3.0. 81,250 -
-------- -------
Total 126,237 86,499
Less current maturities 69,987 41,600
-------- -------
Long-term debt, net of current maturities $ 56,250 $44,899
======== =======
The approximate aggregate amount of all long-term debt maturities for
the years ending December 31, is as follows:
2000 $70,000
2001 25,000
2002 25,000
2003 6,250
Note 6 - Deferred Revenue
----------------
The Company has a two-year outsourcing contract with one of its
customers that expires September 2000. This contract contains
provisions for subsequent one-year renewals. The customer is
billed sixty days in advance for remote access users at a
specified rate per user. The prebilled amount is charged to
deferred revenue and is recognized each month based on the
number of actual users.
-10-
<PAGE>
STRATEGIC NETWORK DESIGNS, INC.
Notes to Financial Statements
Note 7 - Sales Mix
---------
The Company's mix of consulting services and hardware sales was 95% and
5%, respectively, for the year ended December 31, 1999, and 87% and 13%,
respectively, for the year ended December 31, 1998. The gross profit
related to consulting services and hardware sales is 55% and 21%,
respectively, for the year ended December 31, 1999, and 59% and 16%,
respectively, for the year ended December 31, 1998. This created a
combined gross profit of 53% and 51% for the years ended December 31,
1999 and 1998, respectively.
Note 8 - Income Taxes
------------
Deferred tax attributes resulting from differences between financial
accounting amounts and tax bases of assets and liabilities at December
31, 1999 and 1998, are immaterial.
The provisions for income taxes consist of current state tax expense.
Note 9 - Operating Leases
----------------
The Company leases office space under a twenty-one-month lease expiring
September 30, 2000. The monthly payment under the current lease is
$21,892. The Company is required to pay utilities, insurance, and other
costs related to the leased facilities. Rental expense was $269,700 and
$136,833 for the years ended December 31, 1999 and 1998, respectively.
Note 10 - Employee Benefit Plan
---------------------
The Company maintains a 401(k) Savings Plan for employees. The terms of
the Plan define qualified employees as those over 18 years of age, with
one full calendar quarter of service with the Company. Employee
contributions are discretionary to a maximum of 15% of compensation. The
Company contributes a discretionary amount to the 401(k) Savings Plan.
The expense for the years ended December 31, 1999 and 1998, was $103,598
and $80,520, respectively.
Note 11 - Stock Split
-----------
Effective August 12, 1999, the Company's stockholders approved a
11,494.252873 for one stock split with regard to its Series A Common
Stock. The effects of the stock split were to increase the number of
issued and outstanding shares of Series A Common Stock from 87 to
1,000,000. The amount of authorized shares changed from 2,500 to
1,000,000 Series A voting common stock and 1,000,000 Series B non-voting
common stock. All references in the financial statements to number of
shares authorized, issued and outstanding have been retroactively
restated to reflect the increased number of shares outstanding.
Note 12 - Stock-Based Compensation
------------------------
In August 1999, the Company issued 155,380 shares of stock to key
employees. The shares vest at various dates ranging from February 2000
to August 2002. The market value of the stock awarded to key employees
has been estimated at $660,365 which has been recorded as a separate
component of stockholders' equity. The Company amortizes deferred stock-
based compensation over each individual's vesting period.
-11-
<PAGE>
STRATEGIC NETWORK DESIGNS, INC.
Notes to Financial Statements
Note 13 - Major Customers
---------------
The Company had three major customers who accounted for 85% and 76% of
total sales during the year ended December 31, 1999 and 1998,
respectively. These customers accounted for 84% and 72% of accounts
receivable as of December 31, 1999 and 1998, respectively. Major
customers are considered to be those who accounted for more than 10% of
total sales.
Note 14 - Year 2000
---------
The Company has completed the upgrade of all computer systems and
telephone equipment to be Year 2000 compliant. Furthermore, the Company
received assurance from its major vendors that their systems are Year
2000 compliant. However, Year 2000 problems may not surface until after
January 1, 2000.
-12-
