SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 1 TO FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
DATE OF REPORT: AUGUST 31, 2005
NUWAVE TECHNOLOGIES, INC.
-------------------------
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
DELAWARE 0-28606 22-3387630
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(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
109 NORTH POST OAK LANE, SUITE 422
HOUSTON, TEXAS 77024
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(Address of principal executive offices) (Zip code)
Registrant's telephone number, including
area code: (713) 621-2737
--------------
NOT APPLICABLE
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(Former Name or Former Address, If Changed Since Last Report)
Check the appropriate box below if the Form 8-K filing is intended to
simultaneously satisfy the filing obligation of the registrant under any of the
following provisions:
|_| Written communications pursuant to Rule 425 under the Securities Act
(17 CFR 230.425)
|_| Soliciting material pursuant to Rule 14a-12 under the Exchange Act
(17 CFR 240.14a-12)
|_| Pre-commencement communications pursuant to Rule 14d-2(b) under the
Exchange Act (17 CFR 240.14d-2(b))
|_| Pre-commencement communications pursuant to Rule 13e-4(c) under the
Exchange Act (17 CFR 240.13e-4(c))
ITEM 1.01. ENTRY INTO A MATERIAL DEFINITIVE AGREEMENT.
On August 31, 2005 NuWave Technologies, Inc. (the "Company") entered into
a merger agreement (the "Agreement") with Strategies Acquisition Corp., a
wholly-owned subsidiary of the Company ("SPV"), Corporate Strategies, Inc.
("Corporate Strategies") and the shareholders of Corporate Strategies listed on
Exhibit A therein (collectively, the "Shareholders"), whereby SPV merged with
and into Corporate Strategies, with Corporate Strategies remaining as the
surviving corporation and continuing its corporate existence under the laws of
the State of Delaware and as a wholly-owned subsidiary of the Company (the
"Merger"). The separate existence of SPV has ceased.
Pursuant to the terms of the Agreement, the Company issued one (1) share
of its common stock ("Common Stock"), par value $0.001 per share, to each holder
of Corporate Strategies Class A common stock in exchange for two (2) shares of
Corporate Strategies Class A common stock, par value $0.001 per share. Second,
the Company issued one (1) share of the Company's Series C preferred stock
("Series C Preferred"), par value $0.01 per share, to each holder of Corporate
Strategies Series A preferred stock for one (1) share of Corporate Strategies
Series A preferred stock, par value $0.001 per share.
Third, the Company issued and delivered shares of its Series B convertible
preferred stock ("Series B Preferred") to each holder of Corporate Strategies
Class B common stock so that effectively upon conversion of the Series B
Preferred into common shares, the common shares issued upon conversion shall be
equal to ninety-five percent (95%) of the issued and outstanding stock of the
Company (calculated on a fully diluted basis as of the date of the Merger,
following the issuance of all the Merger Consideration (as such term is defined
in the Agreement) and after giving effect to such conversion, but not including
any shares of Common Stock issuable upon conversion of any then outstanding
Company convertible debentures). Therefore, the Merger Consideration for the
Common Stock, Series C Preferred and Series B Preferred was the Corporate
Strategies Class A common, Series A preferred and Class B common, respectively.
The number of shares issued to the Shareholders in connection with the Merger
was based upon a determination by the Company's Board of Directors (the "Board")
that the transaction was in the best interest of the Company and its
shareholders.
ITEM 3.02. UNREGISTERED SALES OF EQUITY SECURITIES.
See Item 1.01 above.
ITEM 5.02. DEPARTURE OF DIRECTORS OR PRINCIPAL OFFICERS; ELECTION OF DIRECTORS;
APPOINTMENT OF PRINCIPAL OFFICERS.
Pursuant to the Agreement (see Item 1.01 above), Mr. George D. Kanakis has
resigned as the sole officer of the Company, effective August 31, 2005. Mr.
Timothy J. Connolly and Mr. A.P. Shukis have replaced him as Chief Executive
Officer and as Chief Financial Officer, respectively. Messrs. Kanakis and Gary
H. Giannantonio have resigned as the Company's directors. Mr. Fred S. Zeidman
has been appointed as the Company's new Chairman and Mr. Connolly has been
appointed as the new Vice Chairman of the Board. These changes to the Board
became effective on October 27, 2005, or ten (10) days following the Record Date
as set forth in that certain Information Statement on Schedule 14-F/A, as filed
with the U.S. Securities and Exchange Commission on October 17, 2005.
ITEM 9.01. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Provided herewith.
(b) Provided herewith.
2
(c) Exhibit No. Description:
EXHIBIT DESCRIPTION
------------ ------------------------------------
Exhibit 99.1 Merger Agreement, dated August 31, Incorporated by reference to
2005, by and among NuWave Exhibit 99.1 to the Company's original
Technologies, Inc., Strategies Current Report on Form 8-K as filed
Acquisition Corp., Corporate with the U.S. Secretary and Exchange
Strategies Inc. and the Shareholders Commission on September 8, 2005
listed therein
3
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.
NUWAVE TECHNOLOGIES, INC.
Date: November 14, 2005 By: /s/ Timothy J. Connolly
-----------------------------
Name: Timothy J. Connolly
Title: Chief Executive Officer
4
ITEM 9.01(A):
CORPORATE STRATEGIES, INC.
FINANCIAL STATEMENTS
TABLE OF CONTENTS
PAGE
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AUDITED CONSOLIDATED FINANCIAL STATEMENTS:
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Report of Independent Registered Public Accounting Firm F-2
Consolidated Balance Sheet as of December 31, 2004 F-3
Consolidated Statements of Operations
For the Years Ended December 31, 2004 and 2003 F-4
Consolidated Statements of Changes in Shareholders' Equity
For the Years Ended December 31, 2004 and 2003 F-5
Consolidated Statements of Cash Flows
For the Years Ended December 31, 2004 and 2003 F-6
Notes to the Consolidated Financial Statements F-7
INTERIM UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS:
--------------------------------------------------------------------------------
Unaudited Consolidated Balance Sheet as June 30, 2005 F-21
Unaudited Consolidated Statements of Operations
For the Six Months Ended June 30, 2005 and June 30, 2004 F-22
Unaudited Consolidated Statements of Cash Flows
For the Six Months Ended June 30, 2005 and June 30, 2004 F-23
Notes to the Unaudited Consolidated Financial Statements F-24
F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FRIM
To the Shareholders
Corporate Strategies, Inc. and Subsidiaries
Houston, Texas
We have audited the accompanying consolidated balance sheet of Corporate
Strategies, Inc. and Subsidiaries as of December 31, 2004 and the related
statements of operations, shareholders' equity, and cash flows for the years
ended December 31, 2004 and 2003. These consolidated financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audit.
We conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
consolidated financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the consolidated financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the over-all financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects the financial position of Corporate Strategies,
Inc. and Subsidiaries as of December 31, 2004, and the results of its operations
and its cash flows for the years ended December 31, 2004 and 2003 in conformity
with accounting principles generally accepted in the United States of America.
Thomas Leger & Co., L.L.P.
April 18, 2005
Houston, Texas
F-2
CORPORATE STRATEGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 2004
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 391,143
Purchased accounts receivable 581,274
Other accounts receivable 72,403
Minimum lease payments receivable 129,468
Notes receivable 88,489
Investment in marketable securities 841,676
Deferred expenses 96,959
Prepaid expense 45,919
-----------
Total current assets 2,247,331
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NONCURRENT ASSETS
Minimum lease payments receivable 269,726
Deferred expenses 42,312
Investments 14,819
Intangible assets, net 33,367
Fixed assets, net 65,032
-----------
Total noncurrent assets 425,256
-----------
TOTAL ASSETS $ 2,672,587
===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable $ 163,346
Accounts payable 204,863
Accrued liabilities 76,458
Margin loans 392,891
Unearned income 70,499
Current tax liability 14,055
Deferred tax liability 90,523
Due to clients 21,461
-----------
Total current liabilities 1,034,096
-----------
NONCURRENT LIABILITIES
Convertible debentures 1,300,000
Unearned income 68,620
Deferred tax liability 15,171
-----------
Total noncurrent liabilities 1,383,791
-----------
Minority interest --
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COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY
Preferred Stock, par value $.001, 1,000,000 shares authorized Series A
Preferred stock; liquidation preference of $898,500
redeemable at $1,500 per share at Company option, cumulative dividends
of $120.00 per share per year, non-voting,
par value $.001, 1,000 shares authorized, 599 shares issued
and outstanding 1
Common stock
Class A, par value $.001, 145,000,000 shares authorized, 14,880,000
shares issued and outstanding 14,880
Class B, par value $.001, 55,000,000 shares authorized, 51,750,000
shares issued and outstanding 51,750
Additional paid-in capital 1,066,302
Retained deficit (878,233)
-----------
Total shareholders' equity 254,700
-----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 2,672,587
===========
The accompanying notes are an integral
part of these consolidated financial statements.
F-3
CORPORATE STRATEGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEARS ENDED
DECEMBER 31, 2004 AND 2003
2004 2003
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REVENUE
Commission income $ 1,158,589 $ 705,033
Discount income 185,226 284,263
Consulting revenue 153,270 3,540
Marketable securities gain 310,049 719,126
Other income 140,838 42,110
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Total revenue 1,947,972 1,754,072
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GENERAL AND ADMINISTRATIVE EXPENSES
Salaries and benefits 450,313 359,624
Commission and loan processing 723,221 320,322
Advertising 164,732 311,899
Business development, travel and entertainment 100,855 86,476
Rent 62,426 20,360
Depreciation and amortization 32,329 22,124
Professional fees 319,855 108,193
Bad debt 388,000 154,828
Other 246,350 112,117
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Total general and administrative expenses 2,488,081 1,495,943
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OTHER (INCOME) EXPENSE
Minority interest (16,230) 4,480
Interest expense 370,894 49,054
Interest income (36,433) (8,240)
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Total other expense 318,231 45,294
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Income (loss) before income tax (858,340) 212,835
------------ ------------
INCOME TAX PROVISION
Current income tax expense 10,000 38,474
Deferred income tax expense 33,807 42,207
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Total income tax provision (benefit) 43,807 80,681
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NET INCOME (LOSS) (902,147) 132,154
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Preferred dividends paid 72,086 80,278
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INCOME (LOSS) APPLICABLE TO COMMON SHARES $ (974,233) $ 51,876
------------ ------------
Basic and diluted income (loss) per share $ (0.02) $ 0.00
============ ============
Basic and diluted average shares outstanding 57,736,557 45,000,000
============ ============
F-4
CORPORATE STRATEGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES
IN SHAREHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 2004 AND 2003
Preferred Stock Common Stock Additional Retained Total
--------------------- ----------------------- Paid-in Earnings Shareholders'
Shares Amount Shares Amount Capital (Deficit) Equity
------- ---------- ---------- ---------- ---------- ---------- ------------
Balance, December 31, 2002 766 $ 1 45,000,000 $ 45,000 $ 628,788 $ 44,124 $ 717,913
------- ---------- ---------- ---------- ---------- ---------- ----------
Net income -- -- -- -- -- 132,154 132,154
Preferred dividends paid -- -- -- -- -- (80,278) (80,278)
------- ---------- ---------- ---------- ---------- ---------- ----------
Balance, December 31, 2003 766 1 45,000,000 45,000 628,788 96,000 769,789
------- ---------- ---------- ---------- ---------- ---------- ----------
Redemption of preferred
stock (167) -- -- -- (145,471) -- (145,471)
Beneficial
Conversion Feature -- -- -- -- 325,000 -- 325,000
Issuance of common stock -- -- 21,630,000 21,630 257,985 -- 279,615
Net loss -- -- -- -- -- (902,147) (902,147)
Preferred dividends paid -- -- -- -- -- (72,086) (72,086)
------- ---------- ---------- ---------- ---------- ---------- ----------
Balance, December 31, 2004 599 $ 1 66,630,000 $ 66,630 $1,066,302 $ (878,233) $ 254,700
======= ========== ========== ========== ========== ========== ==========
F-5
CORPORATE STRATEGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2004 AND 2003
2004 2003
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ (902,147) $ 132,154
Adjustment to reconcile net income (loss) to net cash provided by (used in) operating
activities:
Depreciation and amortization 32,329 22,124
Amortization of deferred expenses 54,646 --
Bad debts 388,000 182,987
Impairment of investment -- 20,650
Minority interest (16,230) 4,480
Non cash interest expense 325,000 --
Non cash revenues (6,653) --
Non cash expense for redemption of preferred stock 75,529 --
Non cash deferred taxes 33,807 --
(Increase) decrease in assets:
Purchased accounts receivable (262,001) 356,775
Other accounts receivable (87,903) (90,311)
Notes receivable (80,913) 123,805
Deferred expenses (28,917) --
Prepaid and other (17,683) 15,095
Investment in marketable securities (684,693) (385,698)
Increase (decrease) in liabilities:
Accounts payable (51,363) 37,412
Accrued liabilities 31,064 19,702
Margin loans 392,891 --
Current tax liability (30,945) 87,207
Due to clients (62,996) (25,646)
Deferred revenue -- (8,563)
----------- -----------
Net cash provided by (used in) operating activities (899,178) 492,173
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of fixed assets (78,392) (41,784)
Purchase of minimum lease payments receivable (253,422) --
Purchase of debentures (86,285) --
Redemption (purchase) of investments 1,181 (16,000)
----------- -----------
Net cash used in investing activities (416,918) (57,784)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from note payable 279,352 2,310,994
Principal payments on note payable (215,006) (2,370,994)
Net proceeds from sale of convertible debentures 1,135,000 --
Net proceeds from issuance of common stock 270,000 --
Purchase of stock from minority interest (7,500) --
Proceeds from issuance of stock to minority interest 10,917 1,666
Preferred dividends paid (72,086) (80,278)
----------- -----------
Net cash provided by (used in) financing activities 1,400,677 (138,612)
----------- -----------
NET INCREASE IN CASH AND CASH EQUIVALENTS 84,581 295,777
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 306,562 10,785
----------- -----------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 391,143 $ 306,562
=========== ===========
SUPPLEMENTAL INFORMATION
Interest paid $ 44,916 $ 55,187
Taxes paid 40,945 474
Redemption of preferred stock:
Decrease in accounts receivable (221,000) --
Decrease in paid-in capital 145,471 --
Decrease in paid-in capital:
For change in par value 10,300 --
For cost of registration statement and issuance of common stock 85,714 --
Increase in paid-in-capital
Beneficial conversion feature 325,000 --
Increase in minority interest 17,584 6,146
Increase in deferred expenses 165,000 --
Marketable securities exchanged for debentures 248,715 --
Common stock issued for services 19,800 --
F-6
CORPORATE STRATEGIES, INC.
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 2004
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS AND ORGANIZATION
Corporate Strategies, Inc. (the "Company"), was organized on January 10, 1996 as
a Texas limited liability company ("LLC") and began its current operations
during 2001. Effective April 1, 2002, the Company incorporated in Delaware with
the former members of the Texas limited liability company owning the same equity
interest in the Company. As such, the financial statements of the Company are
prepared as if the corporation was in existence from inception. The Company is a
merchant bank, operating primarily in Texas, that purchases receivables with
recourse, and provides strategic consulting and other fee-based corporate
finance services, which may include direct investment in clients. Generally, the
Company will realize gains or losses on these direct investments in accordance
with market demands.
On February 18, 2003, the Company formed Aim American Mortgage, Inc. ("Aim"),
incorporated in Texas, for the purpose of engaging in mortgage brokerage
activities. The Company owns 85% of Aim. Aim has a buy-sell agreement with the
minority interest shareholders. The consolidated financial statements of the
Company include the results of the operations of Aim for the period from
February 18, 2003 (inception) to December 31, 2003. Aim has been engaged as a
mortgage broker involved in the process of originating non-government insured
loans in Texas.
On April 23, 2004, Aim formed Aim American Home Loans, Inc. ("AAHL"),
incorporated in Texas, for the purpose of engaging in mortgage brokerage
activities in the sub-prime loan market. Aim owns 100% of AAHL. The consolidated
financial statements of the Company include the results of the operations of
AAHL for the period from April 23, 2004 (inception) to December 31, 2004. AAHL
has been engaged as a mortgage broker involved in the process of brokering
non-government insured loans in Texas.
On October 22, 2004, the Company formed CSI Business Finance, Inc. ("CSIBF"),
incorporated in Texas, for the purpose of engaging in equipment leasing
activities. The consolidated financial statements of the Company include the
results of operations of CSIBF for the period from October 22, 2004 (inception)
to December 31, 2004. CSIBF finances equipment leases for companies, primarily
in Texas. CSIBF is a wholly-owned subsidiary of the Company.
CONSOLIDATION AND PRESENTATIONS
The accompanying consolidated financial statements include the accounts of the
Company and its subsidiaries. All significant intercompany balances and
transactions have been eliminated.
F-7
CORPORATE STRATEGIES, INC.
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 2004
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
REVENUE RECOGNITION AND FINANCE LEASE
The Company's revenue recognition policies are in compliance with Staff
Accounting Bulletin 104. Revenue is recognized at the date a formal arrangement
exists, the price is fixed or determinable, the delivery is complete, no other
significant obligation of the Company exists and collectibility is reasonably
assured.
Commission income from the brokering of loans is recognized when all of the
services required to be performed for such revenues have been completed.
Incremental direct costs include credit reports appraisal fees, document
preparation fees, wire fees, filing fees, and commissions, are included in
operating expenses, net of reimbursements.
Discount income from purchased receivable represents a percentage of the
purchase invoice. The discount percentage earned is determined by the number of
days the invoice is outstanding.
Consulting revenue is recognized as services are performed.
Marketable securities gains (losses) is the change in market value of the
trading securities owned by the Company in accordance with Financial Accounting
Standard 115 "Accounting for Certain Investments in Debt and Equity Securities."
Lease agreements, under which the Company recovers substantially all its
investment from the minimum lease payments are accounted for as finance leases.
At lease commencement, the Company records a minimum lease payment receivable
and unearned lease income. The remaining unearned income is recognized as
revenue over the term of receivables using the interest method.
At December, 2004, a summary of the installments due on minimum lease payments
receivable is as follows:
2005 $129,468
2006 129,468
2007 129,468
2008 10,790
--------
$399,194
========
USE OF ESTIMATES
The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect certain reported amounts and disclosures.
Accordingly, actual results could differ from those estimates.
F-8
CORPORATE STRATEGIES, INC.
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 2004
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
CASH AND CASH EQUIVALENTS
For purposes of the consolidated statement of cash flows, the Company considers
all short-term securities purchased with a maturity date of three months or less
to be cash equivalents.
ACCOUNTS RECEIVABLE, OTHER
Accounts receivable, other, at December 31, 2004, are primarily receivables of
proceeds from the sale of certain leases and receivables for commissions earned
or loans closed in December, 2004. All of these receivables were collected
subsequent to year end.
NOTES RECEIVABLE
In September 2004, the Company converted a $46,400 receivable from a major
customer for consulting fees into a note receivable for $50,000. The note is
being paid through deductions from the customers weekly factoring of accounts
receivable. The note balance at December 31, 2004 is $19,100. The note was fully
paid subsequent to year end.
On July 9, 2004, the Company entered into a promissory note with a customer for
$61,000. The note accrues interest at 18% and was due October 31, 2004. On
November 1, 2004 the parties executed an extension of the due date of the note
to December 31, 2004 and the customer paid the interest due through November 1,
2004. On December 1, 2004 the Company verbally extended the due date to January
31, 2004. The note and accrued interest were paid in full on January 6, 2004.
COLLECTIBILITY OF ACCOUNTS AND NOTES RECEIVABLE
The accounts and notes receivable are reviewed monthly for aging and quarterly
credit evaluation of the customer's financial condition to determine
collectibility. write-offs or an increase in the allowance for doubtful accounts
are made based on this evaluation. Based on the company's evaluation, no
allowance for doubtful accounts is needed as of December 31, 2004.
The purchased accounts receivable has a liability on the Company's financial
statements called "Due to Clients." This liability includes an amount which
represents the difference between the face amount of the invoices purchased and
the amount paid by the Company for the invoice. This amount effectively serves
as an additional allowance for doubtful accounts since it can be used to offset
the customer's uncollected purchased account receivable balances.
F-9
CORPORATE STRATEGIES, INC.
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 2004
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
FIXED ASSETS
Fixed assets are stated at cost. Depreciation is computed using the
straight-line method over estimated useful lives of three to five years.
Leasehold improvements are amortized on a straight-line basis over the shorter
of the useful life of the improvement or the term of the lease.
When assets are retired or otherwise disposed of, the cost and related
accumulated depreciation are removed from the accounts, and any resulting gain
or loss is recognized in operations for the period. The cost of maintenance and
repairs is charged to expense as incurred; significant renewals and betterments
are capitalized.
INCOME TAXES
The Company accounts for income taxes under SFAS No. 109, "Accounting for Income
Taxes," which requires an asset and liability approach to financial accounting
and reporting for income taxes. The difference between the financial statement
and tax basis of assets and liabilities is determined annually. Deferred income
taxes assets and liabilities are computed for those differences that have future
tax consequences using the currently enacted tax laws and rates that apply to
the periods in which they are expected to affect taxable income. Valuation
allowances are established, if necessary, to reduce the deferred tax asset to
the amount that will assure full realization. Income tax expense is the current
tax payable or refundable for the period plus or minus the net change in the
deferred tax assets and liabilities.
ADVERTISING
Advertising costs are expensed as incurred. Advertising expense was $164,732 and
$311,899 for the years ended December 31, 2004 and 2003, respectively.
RECLASSIFICATIONS
The accompanying consolidated financial statements for prior years contain
certain reclassifications to conform with current year presentation.
FAIR VALUE DISCLOSURE AT DECEMBER 31, 2004
The carrying value of cash, notes and accounts receivable, minimum lease
payments receivable, accounts payable, margin loans, accrued liabilities and
notes payable are reasonable estimates of their fair value because of short-term
maturity.
F-10
CORPORATE STRATEGIES, INC.
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 2004
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
NET LOSS PER SHARE
Basic income (loss) per share is computed by dividing the net income (loss)
available to common shareholders by the weighted average of common shares
outstanding during the year. Diluted per share amounts assume the conversion,
exercise, or issuance of all potential common stock instruments unless the
effect is anti-dilutive, thereby reducing the loss or increasing the income per
share.
RECENT ACCOUNTING PRONOUNCEMENTS
In December 2004, the Financial Accounting Standards Board, or FASB, issued
Statement of Financial Accounting Standards No. 123R "Share-Based Payment" (SFAS
123R). This statement revises SFAS No. 123, supercedes APB No. 25, and requires
companies to recognize the cost of employee stock options and other awards of
stock-based compensation based on the fair value of the award as of the grant
date. Currently, this type of compensation expense is not reflected in the
Company's consolidated statements of operations. The effective date of this
pronouncement is as of the beginning of the first interim or annual period that
begins after December 31, 2005. The Company does not believe that the adoption
of SFAS No. 123 will have a material impact on its consolidated financial
position, results of operations or cash flows.
In December 2004, the FASB published the following two final FASB Staff
Positions, effective immediately. FAS 109-1, "Application of FASB Statement No.
109, Accounting for Income Taxes, to the Tax Deduction on Qualified Production
Activities Provided by the American Jobs Creation Act of 2004," giving guidance
on applying FASB Statement No. 109, Accounting for Income Taxes, to the tax
deduction on qualified production activities provided by the American Jobs
Creation Act of 2004. FAS 109-2 "Accounting and Disclosure Guidance for that
Foreign Earnings Repatriation Provision within the American Jobs Creation Act of
2004" provides guidance on the Act's repatriation provision. The Company is in
the process of reviewing the FAS 109-1 and FAS 109-2; however, at this time, the
Company does not believe that the adoption of FAS 109-1 or FAS 109-2 will have a
material impact on our consolidated financial position, results of operations or
cash flows.
In November 2004, the FASB Emerging Issues Task Force, or EITF, reached a
consensus in applying the conditions in Paragraph 42 of SFAS No. 144,
"Accounting for the Impairment or Disposal of Long-Lived Assets, in Determining
Whether to Report Discontinued Operations" (EITF 03-13). Evaluation of whether
operations and cash flows have been eliminated depends on whether (1) continuing
operations and cash flows are expected to be generated, and (2) the cash flows,
based on their nature and significance, are considered direct or indirect. This
consensus should be applied to a component that is either disposed of or
classified as held for sale in fiscal periods beginning after December 15, 2004.
The Company does not believe the adoption of EITF 03-13 will have a material
impact on our consolidated financial position, results of operations or cash
flows.
F-11
CORPORATE STRATEGIES, INC.
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 2004
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
In November 2004, the FASB issued SFAS No. 151, "Inventory Costs--An Amendment
of ARB No. 43, Chapter 4" (SFAS No. 151). SFAS No. 151 amends the guidance in
ARB No. 43, Chapter 4, "Inventory Pricing," to clarify the accounting for
abnormal amounts of idle facility expense, freight, handling costs, and wasted
material (spoilage). Among other provisions, the new rule requires that items
such as idle facility expense, excessive spoilage, double freight, and
re-handling costs be recognized as current-period charges regardless of whether
they meet the criterion of "so abnormal" as stated in ARB No. 43. SFAS No. 151
is effective for fiscal years beginning after June 15, 2005 and is required to
be adopted by us in the first quarter of fiscal 2006, beginning on January 1,
2006. The Company does not believe the adoption of SFAS No. 151 will have an
impact on our consolidated financial position, results of operations and cash
flows.
2. CONCENTRATIONS OF CREDIT RISK AND MAJOR CUSTOMERS
Financial instruments, which potentially subject the Company to concentrations
of credit risk consist principally of cash, accounts and notes receivable and
marketable securities. The Company maintains its cash accounts in a high quality
FDIC insured bank in Texas and in money market brokerage accounts. The Company's
accounts receivables consist of purchased receivables, minimum lease payments
receivable and receivables for consulting from companies located in the United
States. The Company performs ongoing credit evaluations of its customers'
financial conditions to ensure collections and minimize losses. The Company
reduces its credit risk relating to marketable securities through
diversification of marketable securities held.
For the years ended December 31, 2004 and 2003, the Company had sales as a
percent of annual revenues to the following customers:
2004 2003
---- ----
Customer A 13% 8%
Customer B 0% 8%
No other customers accounted for more than 10% of revenue during the year.
F-12
CORPORATE STRATEGIES, INC.
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 2004
2. CONCENTRATIONS OF CREDIT RISK AND MAJOR CUSTOMERS (CONTINUED)
The Company is a minority shareholder (less than 1%) in Customer A. Total
revenues and rent reimbursement from Customer A was as follows:
2004 2003
-------- --------
Consulting revenue $ 91,400 $ --
Revenue from purchased receivables 160,371 140,038
Rent reimbursement (Note 10) -- 28,400
-------- --------
Total $251,771 $168,438
======== ========
3. PURCHASED ACCOUNTS RECEIVABLE
The Company purchases accounts receivable balances from clients and typically
pays less than the face value of the balance at the time a receivable is
purchased. Any amounts collected by the Company in excess of the amounts paid
for the purchased accounts receivable less fees earned and required reserves are
remitted to client. Such excess amounts may be applied to offset uncollected
account balances. Any remaining excess amounts are recorded in the balance sheet
as due to clients.
4. FIXED ASSETS
Fixed assets consisted of the following at December 31, 2004:
Computer equipment $ 69,707
Furniture and fixtures 45,153
Leasehold improvements 15,696
Other 5,000
--------
135,556
Less accumulated depreciation 70,524
--------
Fixed assets, net $ 65,032
========
Depreciation expense for the years ended December 31, 2004 and 2003 was $31,376
and $22,124, respectively.
5. INTANGIBLE ASSETS
In November 2004, the Company purchased from an existing leasing company its
client list and the residual value in certain leases for $57,500. The leases
were sold in January 2005 for approximately $23,000 which was the value assigned
to the leases at December 31, 2004. The remaining purchase price of $34,320 was
assigned to the client list. This intangible asset is being amortized over its
estimated useful life of three years. The amortization expense and reserve for
amortization at December 31, 2004 is $953. Amortization for the years ended
December 31, 2005, 2006 and 2007 will be $11,436, $11,436 and $10,495,
respectively.
F-13
CORPORATE STRATEGIES, INC.
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 2004
6. INVESTMENT IN MARKETABLE SECURITIES
Investments in marketable securities primarily include shares of common stock in
various companies. The investments are considered trading securities, and
accordingly any changes in market value are reflected in the consolidated
statement of operations. At December 31, 2004 and 2003, the Company had
unrealized losses of $25,319 and $1,490, respectively, related to marketable
securities held on those dates. These unrealized losses are included in the
consolidated statements of operations for the respective years.
7. INVESTMENTS AND DEBENTURES
Investments include shares of common stock in companies which do not have a
readily determinable fair market value and are accounted for using the cost
method. Once a quarter, the financial statements, operations and any other
information needed to evaluate these investments are reviewed to determine if an
impairment needs to be recorded.
On October 14, 2004, the Company exchanged cash and common stock in a publicly
traded company for a two (2) year $335,000 12% convertible debenture in another
publicly traded company. The debenture was valued at the market value of the
common stock exchanged. At December 31, 2004, the Company determined that the
debenture was impaired and a reserve was established for $335,000. The Company
has not accrued any interest on this debenture and has recorded the impairment
in bad debt expense.
8. NOTES PAYABLE
On November 20, 2002, the Company obtained an unsecured revolving line of credit
of $100,000 at prime plus 2% with an open maturity date. At December 31, 2004,
the prime rate was 5.25% and amount borrowed was $89,537. At December 31, 2004,
all payments under the terms of the note were current.
The Company has a $1,000,000 re-factoring facility with a bank which has an
outstanding balance of $96,782 at December 31, 2004 and is secured by certain
assets of the Company. The bank maintains a cash account in the Company's name
representing the difference between invoices sold to the bank and the amount
loaned by the bank on those invoices. The balance in this account at December
31, 2004 was $22,974. The Company has no authority over this account and the
bank has the right to offset this amount against the re-factoring facility. As
such, the Company records its obligation to the bank net of this account. The
Company pays the lender 1% of the face value of invoices sold to the lender
under this facility. In addition, the Company pays an additional 3/4% of 1% on
invoices outstanding at the end of the month following the month of sale. The
bank has the right to reassign to the Company any invoices not collected within
ninety (90) days and look to the Company for any balances outstanding. The
facility matured on March 13, 2005, was extended to April 30, 2005 and may be
terminated before then by either party giving sixty (60) days written notice.
This facility is guaranteed by two (2) shareholders of the Company.
9. CONVERTIBLE DEBENTURES
On May 6, 2004, the Company entered into a Security Purchase Agreement with
Cornell Capital Partners, LP ("Cornell") for the sale of $1,200,000 of 5%
Secured Convertible Debentures. The debentures, along with unpaid interest are
convertible, at the option of the holder, into Class A common stock at a
conversion price equal to the lesser of 120% of the initial bid price of the
common stock or 80% of the closing bid price as listed on a principal market. On
the second anniversary date of issuance, the Company has the option of paying
all the unpaid principal and accrued interest on the unconverted debentures or
converting the debentures into common stock. The Company also has the right to
redeem the debentures, in whole or part, at any time for 120% of the face amount
of the debentures plus accrued interest. The debentures are secured by certain
of the Company's assets. At closing $400,000 of the debentures were issued and
funded. The second $400,000 was funded in September, 2004. The final $400,000
was funded in April, 2005.
F-14
CORPORATE STRATEGIES, INC.
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 2004
9. CONVERTIBLE DEBENTURES (CONTINUED)
On June 30, 2004, the Company terminated a standby Equity Distribution Agreement
dated May 6, 2004 and entered into a new Standby Equity Distribution Agreement
for the sale of up to $25,000,000 of the Company's Class A Common Stock. For a
period of two years commencing after the effective date of a registration
statement registering the resale of the common stock and for as long as the
Registration Statement continues to be effective, the Company can request
periodic purchases of up to $600,000 of the committed amount. The purchase price
of the stock will be 98% of the volume weighted average price of the common
stock for five consecutive trading days following the purchase request. The
Company pays a fee of 5% of each requested purchase amount to Cornell. The
Company also issued Cornell and others 3,780,000 shares of Class A Common Stock
for services rendered pursuant to the agreements.
On June 29, 2004, the Company entered into an agreement with iVoice, Inc. for
the sale of $500,000 of 5% Secured Convertible Debentures. Proceeds were
received and the debentures issued at the closing date. The redemption and
convertibility terms are identical with the securities discussed in the first
paragraph above.
In accordance with EITF 98-5 "Accounting for Convertible Securities with
Beneficial Conversion Features or Contingently Adjustable Conversion Ratios",
the conversion feature on the above debentures which are convertible at date of
issuance was accounted for as a beneficial conversion feature and is calculated
at its intrinsic value at the commitment date. The proceeds from issuance of the
convertible debt were reduced by the intrinsic value of $325,000 which is
allocated to additional paid-in capital. Because the debt is convertible at the
date of issuance, the debt discount is charged to interest expense at the date
of issuance.
10. COMMITMENTS AND CONTINGENCIES
LEASES
The Company leases its office space under an operating lease which expires in
March, 2006. Rental expense under this operating lease aggregated $62,426 and
$51,466 for the years ended December 31, 2004 and 2003, respectively. The rent
for 2003 was offset by rent reimbursement of $28,400 received from a client that
was leasing space from the Company on a month-to-month basis. Effective February
10, 2005, the Company entered into a second five year lease in a separate
building and moved the Company's headquarters there with AIM remaining in the
previous space. Future minimum payments under non-cancelable operating leases
with initial or remaining terms of one year or more consist of the following at
December 31, 2004:
F-15
CORPORATE STRATEGIES, INC.
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 2004
10. COMMITMENTS AND CONTINGENCIES (CONTINUED)
Operating
Leases
--------
2005 $120,765
2006 84,652
2007 73,591
2008 74,032
2009 74,032
2010 8,058
--------
Total Minimum Lease Payments $425,130
========
In connection with the brokerage of loans, the Company is required to make
customary representations and warranties regarding the Company and the loans.
The Company may be subject to these representations and warranties for the life
of the loans and they relate to, among other things: compliance with laws;
regulations and underwriting standards; the accuracy of information in the loan
documents and loan files; and the characteristics and enforceability of the
loans. If the loan is closed before the Company detects non-compliance with
these requirements, the Company may be obligated to indemnify the purchaser
against that loss. The Company believes they have qualified personnel and have
established controls to help ensure that all loans will be originated to the
market's requirements; however, the Company cannot provide any assurance that
the Company will succeed in doing so. The Company does not believe an allowance
for defective loan losses is necessary at this time, however, an allowance will
be provided when the Company determines one is necessary.
11. SHAREHOLDERS' EQUITY
COMMON STOCK
On May 4, 2004 the Company changed the par value of its common stock from $1.00
to $.001 per share and increased the number of authorized shares to 200,000,000
consisting of 145,000,000 shares of Class A common stock and 55,000,000 shares
of Class B common stock. The terms and rights of Class A Common Stock are
identical in all respects, except that (1) each share of Class A Common Stock
shall be entitled to one vote on all matters, and (2) each share of Class B
Common Stock shall be entitled to ten votes on all matters. Any share of Class B
Common Stock that is sold in an open market transaction shall automatically
convert upon such transfer into one share of Class A Common Stock. Any share of
Class B Common Stock that is transferred by gift or in a private transaction (as
opposed to an open market transaction) shall retain its status as a share of
Class B Common Stock unless and until such share is transferred in an open
market transaction.
F-16
CORPORATE STRATEGIES, INC.
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 2004
11. SHAREHOLDERS' EQUITY (CONTINUED)
Effective May 4, 2004, the Company effected a 45,000 to 1 stock split and in
August 2004 effected a 3 to 1 stock split. All prior share amounts have been
retroactively adjusted to reflect this change.
On March 31, 2004, 6,750,000 shares of common stock were sold to an original
shareholder for $150.
On June 29, 2004, the Company entered into an agreement with iVoice, Inc. for
the sale of 7,500,000 shares of the Company's Class A common stock for $250,000.
During July and August 2004, the Company sold 3,000,000 shares of the Company's
Class A common stock to ten (10) private investors for $100,000. In October
2004, the Company issued 600,000 shares of the Company's Class A common stock
valued at $19,800 for services for the period October 1, 2004 through September
30, 2005.
SERIES A PREFERRED STOCK
On May 4, 2004, the Company increased the authorized to 1,000,000 shares of
$.001 par value preferred stock. The Company has authorized 1,000 shares of
Series A preferred stock of which 599 shares are outstanding. The Series A are
entitled to a cumulative dividend of $120 per year, to a liquidation preference
of $1,500 per share plus any accrued but unpaid dividends and is non-voting. In
addition, at the option of the Company, each share can be redeemed at a price of
$1,500 per share, plus any accrued and unpaid dividends.
During 2004 and 2003, the Company paid preferred stock dividends in the amount
of $72,083 and $80,278, respectively. The preferred stock shareholders are also
common stock shareholders.
12. RELATED PARTY TRANSACTIONS
EMPLOYEE NOTE RECEIVABLE
On October 26, 2004, the Company entered into a promissory note receivable of
$7,500 with an employee of the Company. On December 10, 2004, the Company
entered into a promissory note receivable of $5,500 with the same employee. The
notes accrue interest at 18% and are payable to the Company in full on January
31, 2005 and February 28, 2005, respectively. The note is secured by the
commissions earned by the employee. At December 31, 2004 the amount of the notes
receivable was $8,389. The notes were paid in full subsequent to year end.
F-17
CORPORATE STRATEGIES, INC.
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 2004
12. RELATED PARTY TRANSACTIONS (CONTINUED)
EMPLOYMENT CONTRACT
On September 1, 2004, the Company entered into a five year employment agreement,
effective June 1, 2004 with Tim Connolly, Chief Executive Officer and Chairman
of the Board. The agreement has a renewal provision, provides for an annual
salary and bonus upon attaining certain performance criteria set by the board of
directors. The agreement also provides certain anti-dilution provisions in
return for an extension of lock-up of the Chief Executive Officer's shares until
December 31, 2007 and for certain other fringe benefits.
13. INCOME TAXES
The following table sets forth a reconciliation of the statutory federal income
tax for the year ended December 31, 2004 and 2003:
2004 2003
--------- ---------
Income before taxes $(902,147) $ 212,835
========= =========
Income tax computed at statutory rates $(306,730) $ 72,364
Permanent differences, nondeductible expenses 139,107 8,461
Increase in valuation allowance 113,900 --
Increase in deferred liability 13,807 --
Other 29,916 (144)
--------- ---------
Tax Liability $ (10,000) $ 80,681
========= =========
The Company files a consolidated tax return with its subsidiaries.
F-18
CORPORATE STRATEGIES, INC.
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 2004
13. INCOME TAXES (CONTINUED)
DEFERRED INCOME TAXES
The tax effects of the temporary differences between financial statement income
and taxable income are recognized as a deferred tax asset and liability.
Significant components of the deferred tax asset and liability as of December
31, 2004 is set out below:
DEFERRED TAX ASSET
Conversion to cash basis for tax reporting purposes $ 29,262
Impairment expense 113,900
Valuation allowance (113,900)
---------
Deferred tax asset 29,262
DEFERRED TAX LIABILITY
Fixed asset tax basis difference 15,171
Unrealized gain on security transaction 119,785
---------
Deferred tax liability 134,956
---------
Net deferred tax liability $ 105,694
=========
14. SEGMENT REPORTING
The Company has three segments: mortgage brokerage, through its 85% owned
subsidiary, Aim American Mortgage, Inc., and subsidiary, which originates
non-government insured loans in Texas, equipment leasing, through its wholly
owned subsidiary, CSI Business Finance, Inc. and merchant banking. As a merchant
banker, the Company purchases receivables with recourse, makes secured loans to
small businesses, provides strategic consulting and other fee based corporate
finance services, and makes investments which may include direct investments in
clients.
The Company evaluates segment performance and allocates resources based on
several factors, of which revenue and income before federal income tax are the
primary financial measures. The accounting policies of the reportable segments
are the same as those described in the footnote entitled "Summary of Significant
Accounting Policies" of the Notes to the Consolidated Financial Statements.
F-19
CORPORATE STRATEGIES, INC.
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 2004
14. SEGMENT REPORTING (CONTINUED)
The Company's operations are conducted in the United States.
MORTGAGE EQUIPMENT MERCHANT
BROKERAGE (1) LEASING (2) BANKING TOTAL
------------ ----------- ----------- -----------
Year ended December 31, 2003
Revenue $ 705,033 $ -- $ 1,049,039 $ 1,754,072
Interest expense/(income) (582) -- 41,396 40,814
Income before income tax 34,899 -- 177,936 212,835
Segment assets 591,242 -- 603,157 1,194,399
Additions to long-term assets 34,029 -- 7,755 41,784
Depreciation 6,161 -- 15,963 22,124
YEAR ENDED DECEMBER 31, 2004
Revenue $ 1,145,025 $ 6,653 $ 796,294 $ 1,947,972
Interest expense/(income) (8,654) -- 343,115 334,461
Income (Loss) before income tax (233,078) 2,875 (628,137) (858,340)
Segment assets 412,855 338,223 1,921,509 2,672,587
Additions to long-term assets 34,391 34,320 9,681 78,392
Depreciation and Amortization 17,400 953 13,976 32,329
(1) Amounts presented for December 31, 2003 are for the period from February
18, 2003 (inception) to December 31, 2003.
(2) Amounts presented for December 31, 2004 are for the period from October
22, 2004 (inception) to December 31, 2004
F-20
CORPORATE STRATEGIES, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED BALANCE SHEET
JUNE 30, 2005
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 656,024
Purchased accounts receivable 23,560
Accounts receivable-shareholder 55,112
Other accounts receivable 65,850
Minimum lease payments receivable 152,854
Notes receivable 157,000
Investment in marketable securities 583,303
Deferred expenses 130,907
Prepaid expense 119,635
-----------
Total current assets 1,944,245
-----------
NONCURRENT ASSETS
Minimum lease payments receivable 215,783
Deferred expenses 29,375
Investments 14,819
Intangible assets, net 27,647
Fixed assets, net 135,873
-----------
Total noncurrent assets 423,497
-----------
TOTAL ASSETS $ 2,367,742
===========
LIABILITIES AND SHAREHOLDERS' DEFICIT
CURRENT LIABILITIES
Notes payable $ 89,537
Accounts payable 205,555
Accrued liabilities 112,574
Unearned income 65,783
Current tax liability 14,055
Deferred tax liability 137,264
Due to clients 59,920
-----------
Total current liabilities 684,688
-----------
NONCURRENT LIABILITIES
Convertible debentures 1,700,000
Unearned income 41,005
Deferred tax liability 29,637
-----------
Total noncurrent liabilities 1,770,642
-----------
Minority interest --
-----------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' DEFICIT
Preferred Stock, par value $.001, 1,000,000 shares authorized
Series A Preferred stock; liquidation preference of $855,000 redeemable at $1,500 per share at
Company option, cumulative dividends of $120.00 per share per year, non-voting, par value
$.001, 1,000 shares authorized, 570 shares issued and outstanding 1
Common stock
Class A, par value $.001, 145,000,000 shares authorized, 39,880,000 shares issued and outstanding 39,880
Class B, par value $.001, 55,000,000 shares authorized, 43,416,667 shares issued and outstanding 43,417
Additional paid-in capital 1,124,298
Retained deficit (1,295,184)
-----------
Total shareholders' deficit (87,588)
-----------
TOTAL LIABILITIES AND SHAREHOLDERS' DEFICIT $ 2,367,742
===========
F-21
CORPORATE STRATEGIES, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 2005 AND 2004
2005 2004
------------ ------------
REVENUE
Commission income $ 599,269 $ 584,058
Discount income 98,608 72,623
Consulting revenue 117,000 --
Marketable securities gain 194,564 62,718
Other income 89,159 64,270
------------ ------------
Total revenue 1,098,600 783,669
------------ ------------
GENERAL AND ADMINISTRATIVE EXPENSES
Salaries and benefits 360,165 261,876
Commission and loan processing 374,539 305,704
Advertising 89,537 73,172
Business development, travel and entertainment 82,044 33,406
Rent 66,490 30,628
Depreciation and amortization 27,642 15,144
Professional fees 172,710 97,996
Other 161,890 116,672
------------ ------------
Total general and administrative expenses 1,335,017 934,598
------------ ------------
OTHER (INCOME) EXPENSE
Minority interest (750) (17,308)
Interest expense 142,067 12,124
Other income (46,517) --
Interest income (5,533) (4,040)
------------ ------------
Total other (income) expense 89,267 (9,224)
------------ ------------
Loss before income tax (325,684) (141,705)
------------ ------------
INCOME TAX PROVISION
Current income tax expense (benefit) -- --
Deferred income tax expense (benefit) 61,207 (35,229)
------------ ------------
Total income tax provision (benefit) 61,207 (35,229)
------------ ------------
NET LOSS (386,891) (106,476)
Preferred dividends paid 30,060 38,306
------------ ------------
LOSS APPLICABLE TO COMMON SHARES $ (416,951) $ (144,782)
============ ============
Basic and diluted loss per share $ (0.01) $ (0.00)
============ ============
Basic and diluted average shares outstanding 66,630,000 49,438,516
============ ============
F-22
CORPORATE STRATEGIES, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2005 AND 2004
2005 2004
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (386,891) $ (106,476)
Adjustment to reconcile net loss to net cash provided by (used in) operating
activities:
Depreciation and amortization 27,642 15,144
Amortization of deferred expenses 56,604 --
Minority interest -- (17,308)
Non-cash interest expense 100,000 --
Non-cash expense for redemption of preferred stock 18,163 --
Non-cash deferred taxes 61,207 --
(Increase) decrease in assets:
Purchased accounts receivable 557,714 (19,252)
Other accounts receivable 6,553 (115,715)
Accounts receivable-shareholder (55,112) 37,500
Minimum lease payments receivable 64,573 --
Notes receivable (69,261) (19,464)
Deferred expenses (12,615) --
Prepaid and other (73,716) (36,125)
Investment in marketable securities 258,373 216,621
Deferred expenses -- (28,085)
Increase (decrease) in liabilities:
Accounts payable (42,808) 43,634
Accrued liabilities 36,116 (37,499)
Margin loans (392,891) --
Current tax liability -- (35,229)
Due to clients 38,459 (33,979)
Unearned income (41,310) --
----------- -----------
Net cash provided by (used in) operating activities 150,800 (136,233)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of fixed assets (92,763) (18,730)
Purchase of minimum lease payments receivable (25,037) --
----------- -----------
Net cash used in investing activities (117,800) (18,730)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Principal payments on note payable (73,809) --
Net proceeds from sale of convertible debentures 335,000 775,000
Net proceeds from issuance of common stock -- 170,150
Proceeds from issuance of stock to minority interest 750 --
Preferred dividends paid (30,060) (38,306)
----------- -----------
Net cash provided by financing activities 231,881 906,844
----------- -----------
NET INCREASE IN CASH AND CASH EQUIVALENTS 264,881 751,881
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 391,143 306,562
----------- -----------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 656,024 $ 1,058,443
=========== ===========
SUPPLEMENTAL INFORMATION
Interest paid $ 5,977 $ 8,791
Taxes paid -- 30,000
Redemption of preferred stock:
Decrease in accounts receivable (43,500) (50,238)
Increase in accounts payable -- (65,530)
Decrease in paid-in capital 25,337 115,766
Increase in additional paid-in capital
Beneficial conversion feature 100,000 --
Increase in deferred expenses 65,000 125,000
Increase in minority interest -- 11,262
Costs of registration statement charged to additional paid-in capital -- 90,335
Increase in additional paid-in capital for cost of registration statement withheld by
investor -- 80,000
Increase in common stock and reduction of additional paid-in capital for stock split
and change in par value -- 7,860
F-23
CORPORATE STRATEGIES, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS
JUNE 30, 2005
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements of Corporate
Strategies, Inc. have been prepared in accordance with the accounting principles
generally accepted in the United States of America for interim financial
reporting. They do not include all of the information and footnotes required by
accounting principles generally accepted in the United States of America for
complete financial statements. In the opinion of management, all adjustments,
consisting only of normal recurring adjustments, considered necessary for a fair
presentation, have been included in the accompanying unaudited financial
statements. Operating results for the periods presented are not necessarily
indicative of the results that may be expected for the full year.
These financial statements should be read in conjunction with the audited
financial statements and footnotes for the year ended December 31, 2004 which
are included in this Form 8-K/A.
NOTE 2 - SUBSEQUENT EVENTS
On August 25, 2005, Corporate Strategies, Inc. merged CSI Business Finance (a
wholly owned subsidiary of Corporate Strategies) and Health Express USA, Inc., a
public company currently trading on the OTC Bulletin Board. As a result of the
share exchange agreement, Corporate Strategies, Inc. exchanged its common shares
of CSI Business Finance, Inc. for 100,000 restricted shares of Series A
Convertible Preferred stock of Health Express.
Corporate Strategies has chosen to spin off the preferred stock shares acquired
in this transaction to its shareholders in the form of a dividend. The effect of
the spin-off of CSI Business Finance, Inc. on the Unaudited Consolidated
Financial Statements at June 30, 2005 would be as follows:
Corporate
Strategies,
Corporate Inc.
Strategies, Consolidated
Inc. CSI Business After Spin-
Consolidated Finance, Inc. Off
(Unaudited) (Unaudited) (Unaudited)
------------ ------------ ------------
Balance Sheet
Total current assets $ 1,944,245 $ 72,843 1,871,402
Total non-current assets 423,497 244,263 179,234
------------ ------------ ------------
Total assets $ 2,367,742 $ 317,106 $ 2,050,636
============ ============ ============
Total current liabilities $ 684,688 $ 71,100 $ 613,588
Total non-current liabilities 1,770,642 41,005 1,729,637
------------ ------------ ------------
Total liabilities 2,455,330 112,105 2,343,225
Total shareholders' equity (87,588) 205,001 (292,589)
------------ ------------ ------------
Total liabilities and shareholders' equity $ 2,367,742 $ 317,106 $ 2,050,636
============ ============ ============
F-24
CORPORATE STRATEGIES, INC.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2005
NOTE 2 - SUBSEQUENT EVENTS (continued)
Corporate
Strategies,
Corporate Inc.
Strategies, Consolidated
Inc. CSI Business After Spin-
Consolidated Finance, Inc. Off
(Unaudited) (Unaudited) (Unaudited)
------------ ------------ ------------
Statement of Operations
Total Revenues $ 1,098,600 $ 88,424 $ 1,010,176
Total operating expenses 1,335,017 66,517 1,268,500
Total other expense 89,267 -- 89,267
------------ ------------ ------------
Income (loss) before taxes (325,684) 21,907 (347,591)
Total income tax expense 61,207 4,010 57,197
------------ ------------ ------------
Net income (loss) (386,891) 17,897 (404,788)
Dividends paid 30,060 12,000 18,060
------------ ------------ ------------
Income (loss) applicable to common shares $ (416,951) $ 5,897 $ (422,848)
============ =========== ============
F-25
ITEM 9.01(B):
CORPORATE STRATEGIES, INC.
PRO FORMA FINANCIAL STATEMENTS
TABLE OF CONTENTS
PAGE
----
Pro Forma Financial Statements:
Unaudited Consolidated Pro Forma Balance Sheet as June 30, 2005 F-28
Unaudited Consolidated Pro Forma Statement of Operations For the
Six Months Ended June 30, 2005 F-29
Unaudited Consolidated Pro Forma Statement of Operations For the
Year Ended December 31, 2004 F-30
F-26
CORPORATE STRATEGIES, INC.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS
DESCRIPTION OF MERGER AND RELATED EVENTS
On August 31, 2005 NuWave Technologies, Inc. (the "Company") entered into a
merger agreement (the "Agreement") with Strategies Acquisition Corp., a
wholly-owned subsidiary of the Company ("SPV"), Corporate Strategies, Inc.
("Corporate Strategies") and the shareholders of Corporate Strategies
(collectively, the "Shareholders"), whereby SPV merged with and into Corporate
Strategies, with Corporate Strategies remaining as the surviving corporation and
continuing its corporate existence under the laws of the State of Delaware and
as a wholly-owned subsidiary of the Company (the "Merger"). The separate
existence of SPV has ceased.
Pursuant to the terms of the Agreement, the Company issued one (1) share of its
common stock ("Common Stock"), par value $0.001 per share, to each holder of
Corporate Strategies Class A common stock in exchange for two (2) shares of
Corporate Strategies Class A common stock, par value $0.001 per share. Second,
the Company issued one (1) share of the Company's Series C preferred stock
("Series C Preferred"), par value $0.01 per share, to each holder of Corporate
Strategies Series A preferred stock for one (1) share of Corporate Strategies
Series A preferred stock, par value $0.001 per share. Third, the Company issued
and delivered shares of its Series B convertible preferred stock ("Series B
Preferred") to each holder of Corporate Strategies Class B common stock so that
effectively upon conversion of the Series B Preferred into common shares, the
common shares issued upon conversion shall be equal to ninety-five percent (95%)
of the issued and outstanding stock of the Company (calculated on a fully
diluted basis as of the date of the Merger, following the issuance of all the
Merger Consideration (as such term is defined in the Agreement) and after giving
effect to such conversion, but not including any shares of Common Stock issuable
upon conversion of any then outstanding Company convertible debentures).
Therefore, the Merger Consideration for the Common Stock, Series C Preferred and
Series B Preferred was the Corporate Strategies Class A common, Series A
preferred and Class B common, respectively. The number of shares issued to the
Shareholders in connection with the Merger was based upon a determination by the
Company's Board of Directors (the "Board") that the transaction was in the best
interest of the Company and its shareholders.
The unaudited pro forma consolidated balance sheet is presented as if the
exchange had taken place on June 30, 2005. The unaudited pro forma consolidated
statement of operations for the year ended December 31, 2004 and the six months
ended June 30, 2005 are presented as if the exchange had taken place at the
beginning of each reporting period. The unaudited pro forma consolidated
financial statements are provided for information purposes only and do not
purport to represent what the consolidated financial position and results of
operations would have been had the merger, in fact, occurred on the dates
indicated. The unaudited pro forma consolidated financial statements are
presented for illustrative purposes only. The pro forma adjustments are based
upon available information and assumptions that management believes are
reasonable.
The accompanying consolidated financial statements of Corporate Strategies
presented in this report should be read in conjunction with Corporate
Strategies' audited consolidated financial statements and footnotes for the year
ended December 31, 2004 which are included in this Form-8K/A. Also included are
Corporate Strategies' unaudited consolidated financial statements for the six
months ended June 30, 2005.
The accompanying consolidated financial statements of the NuWave Technologies,
Inc. should be read in conjunction with the historical financial statements of
the NuWave Technologies, Inc. included in it's Form 10-KSB for the year ended
December 31, 2004 and it's Form 10-QSB for the six months ended June 30, 2005.
This transaction is being accounted for as a reverse acquisition since the
control of the Company has passed to the stockholders of the acquired company.
F-27
CORPORATE STRATEGIES, INC.
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
JUNE 30, 2005
Corporate NuWave
Strategies, Technologies,
Inc. Inc. Adjustments Pro Forma
------------ ------------ ------------ ------------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 656,024 $ 9,000 $ -- $ 665,024
Purchased accounts receivable 23,560 -- -- 23,560
Other accounts receivable--shareholder 55,112 -- -- 55,112
Other accounts receivable 65,850 -- -- 65,850
Minimum lease payments receivable 152,854 -- -- 152,854
Notes receivable 157,000 -- -- 157,000
Investment in marketable securities 583,303 85,000 -- 668,303
Deferred expenses 130,907 -- -- 130,907
Prepaid expenses 119,635 23,000 -- 142,635
------------ ------------ ------------ ------------
Total current assets 1,944,245 117,000 -- 2,061,245
------------ ------------ ------------ ------------
NONCURRENT ASSETS
Minimum lease payments receivable 215,783 -- -- 215,783
Deferred expenses 29,375 -- -- 29,375
Investments 14,819 -- -- 14,819
Intangible assets, net 27,647 -- -- 27,647
Fixed assets, net 135,873 17,000 -- 152,873
Land held for development and sale -- 2,884,000 -- 2,884,000
------------ ------------ ------------ ------------
Total noncurrent assets 423,497 2,901,000 -- 3,324,497
------------ ------------ ------------ ------------
TOTAL ASSETS $ 2,367,742 3,018,000 -- 5,385,742
============ ============ ============ ============
LIABILITIES AND
SHAREHOLDERS' (DEFICIT)
CURRENT LIABILITIES
Notes payable $ 89,537 $ -- $ -- $ 89,537
Accounts payable 205,555 166,000 -- 371,555
Accrued liabilities 112,574 -- -- 112,574
Unearned income 65,783 -- -- 65,783
Current tax liability 14,055 -- -- 14,055
Deferred tax liability 137,264 -- -- 137,264
Due to clients 59,920 -- -- 59,920
Current portion of convertible debentures -- 355,000 -- 355,000
Current portion of convertible debentures--related
party -- 250,000 -- 250,000
Current portion of note payable--related party -- 176,000 -- 176,000
------------ ------------ ------------ ------------
Total current liabilities 684,688 947,000 -- 1,631,688
------------ ------------ ------------ ------------
NONCURRENT LIABILITIES
Note payable--related party -- 3,481,000 -- 3,481,000
Note payable--related party, net of current portion -- 1,224,000 -- 1,224,000
Convertible debenture 1,700,000 84,000 -- 1,784,000
Accrued interest--non-current -- 183,000 -- 183,000
Unearned income 41,005 -- -- 41,005
Deferred tax liability 29,637 -- -- 29,637
------------ ------------ ------------ ------------
Total noncurrent liabilities 1,770,642 4,972,000 -- 6,742,642
------------ ------------ ------------ ------------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' (DEFICIT)
Preferred stock 1 -- 1,005 A 1,006
Common stock 83,297 3,000 (63,586) A 22,711
Additional paid-in-capital 1,124,298 25,918,000 (25,813,419)A,B,C 1,228,879
Accumulated other comprehensive loss -- (45,000) -- (45,000)
Retained earnings (deficit) (1,295,184) (28,777,000) 25,876,000 B,C (4,196,184)
------------ ------------ ------------ ------------
Total shareholders' equity (deficit) (87,588) (2,901,000) -- (2,988,588)
------------ ------------ ------------ ------------
TOTAL LIABILITIES AND SHAREHOLDERS' (DEFICIT) $ 2,367,742 $ 3,018,000 $ -- $ 5,385,742
============ ============ ============ ============
A To record the shares of common and preferred stock issued at the time of
merger
B To eliminate the Nuwave retained deficit
C To record merger expense for the net liabilities acquired as a part of the
merger
F-28
CORPORATE STRATEGIES, INC.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 2005
Corporate NuWave
Strategies, Technologies,
Inc. Inc. Adjustments Pro Forma
------------ ------------ ------------ ------------
REVENUE
Commission income $ 599,269 $ -- $ -- $ 599,269
Discount income 98,608 -- -- 98,608
Consulting revenue 117,000 -- -- 117,000
Marketable securities gain 194,564 -- -- 194,564
Other income 89,159 -- -- 89,159
------------ ------------ ------------ ------------
1,098,600 -- -- 1,098,600
------------ ------------ ------------ ------------
GENERAL AND ADMINISTRATIVE EXPENSES
Salaries and benefits 360,165 77,770 (77,770) A 360,165
Commissions and loan processing 374,539 -- -- 374,539
Advertising 89,537 -- -- 89,537
Business development, travel and entertainment 82,044 -- -- 82,044
Rent 66,490 53,079 (53,079) A 66,490
Depreciation and amortization 27,642 4,397 -- 32,039
Professional fees 172,710 201,391 (151,391) A 222,710
Merger expense -- -- 2,901,000 B 2,901,000
Other 161,890 61,816 -- A 223,706
------------ ------------ ------------ ------------
Total general and administrative expenses 1,335,017 398,453 2,618,760 4,352,230
------------ ------------ ------------ ------------
OTHER (INCOME) EXPENSE
Minority interest (750) -- -- (750)
Interest expense 142,067 119,221 -- 261,288
Interest income (5,533) -- -- (5,533)
Other income (46,517) -- -- (46,517)
------------ ------------ ------------ ------------
Total other expense 89,267 119,221 -- 208,488
------------ ------------ ------------ ------------
Income (loss) before income tax (325,684) (517,674) (2,618,760) (3,462,118)
------------ ------------ ------------ ------------
INCOME TAX PROVISION
Current income tax expense (benefit) -- -- -- --
Deferred income tax provision (benefit) 61,207 -- 61,207
------------ ------------ ------------ ------------
Total income tax provision (benefit) 61,207 -- -- 61,207
------------ ------------ ------------ ------------
NET LOSS (386,891) (517,674) (2,618,760) (3,523,325)
Preferred dividends paid 30,060 -- -- 30,060
------------ ------------ ------------ ------------
NET LOSS APPLICABLE TO COMMON SHARES $ (416,951) $ (517,674) $ (2,618,760) $ (3,553,385)
============ ============ ============ ============
Basic and diluted loss per common share $ (0.01) $ (0.23) $ (0.16)
============ ============ ============
Basic and diluted average shares outstanding 66,630,000 2,294,323 22,710,816
============ ============ ============
COMPREHENSIVE LOSS
Net Loss $ (416,951) $ (517,674) $ (2,618,760) $ (3,553,385)
Unrealized gain on marketable securities -- (170,000) -- (170,000)
------------ ------------ ------------ ------------
Comprehensive loss $ (416,951) $ (687,674) $ (2,618,760) $ (3,723,385)
============ ============ ============ ============
A To eliminate revenue and expenses that do not relate to on-going
operations
B To record merger expense for the net liabilities acquired
F-29
CORPORATE STRATEGIES, INC.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2004
Corporate NuWave
Strategies, Technologies,
Inc. Inc. Adjustments Pro Forma
------------ ------------ ------------ ------------
REVENUE
Commission income $ 1,158,589 $ -- $ -- $ 1,158,589
Discount income 185,226 -- -- 185,226
Consulting revenue 153,270 -- -- 153,270
Marketable securities gain 310,049 -- -- 310,049
Other income 140,838 -- -- 140,838
------------ ------------ ------------ ------------
1,947,972 -- -- 1,947,972
------------ ------------ ------------ ------------
GENERAL AND ADMINISTRATIVE EXPENSES
Salaries and benefits 450,313 197,771 (197,771) A 450,313
Commissions and loan processing 723,221 -- -- 723,221
Advertising 164,732 -- -- 164,732
Business development, travel and entertainment 100,855 -- -- 100,855
Rent 62,426 48,678 (48,678) A 62,426
Depreciation and amortization 32,329 5,188 -- 37,517
Professional fees 319,855 344,340 (229,340) A 434,855
Bad Debt 388,000 -- -- 388,000
Merger Expense -- -- 2,901,000 B 2,901,000
Other 246,350 144,692 -- 391,042
------------ ------------ ------------ ------------
Total general and administrative expenses 2,488,081 740,669 2,425,211 5,653,961
------------ ------------ ------------ ------------
OTHER (INCOME) EXPENSE
Minority interest (16,230) -- -- (16,230)
Interest expense 370,894 517,531 (240,000) A 648,425
Interest income (36,433) (2,833) 2,833 A (36,433)
Gain on forgiveness of debt -- (19,977) 19,977 A --
Gain on sale of interest in undeveloped land -- (850,001) 850,001 A --
------------ ------------ ------------ ------------
Total other (income) expense 318,231 (355,280) 632,811 595,762
------------ ------------ ------------ ------------
Loss before income tax (858,340) (385,389) (3,058,022) (4,301,751)
INCOME TAX PROVISION
Current income tax expense (benefit) 10,000 (49,590) 49,590 A 10,000
Deferred income tax provision (benefit) 33,807 -- -- 33,807
------------ ------------ ------------ ------------
Total income tax provision (benefit) 43,807 (49,590) 49,590 43,807
------------ ------------ ------------ ------------
NET LOSS (902,147) (335,799) (3,107,612) (4,345,558)
Preferred dividends paid 72,086 -- -- 72,086
------------ ------------ ------------ ------------
NET LOSS APPLICABLE TO COMMON SHARES $ (974,233) $ (335,799) $ (3,107,612) $ (4,417,644)
============ ============ ============ ============
Basic and diluted net loss per share $ (0.02) $ (0.17) $ (0.20)
============ ============ ============
Basic and diluted average shares outstanding 57,736,557 1,986,640 22,710,816
============ ============ ============
COMPREHENSIVE LOSS
Net Loss $ (974,233) $ (335,799) $ (3,107,612) (4,417,644)
Unrealized gain on marketable securities -- 125,261 -- 125,261
------------ ------------ ------------ ------------
Comprehensive loss $ (974,233) $ (210,538) $ (3,107,612) $ (4,292,383)
============ ============ ============ ============
A To eliminate revenue and expenses that do not relate to on-going
operations
B To record merger expense for the net liabilities acquired
F-30