Attached files
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| 8-K/A - Teleconnect Inc. | v213403_8ka.htm |
Item 9.01 – Financial Statements and Exhibits
Item 9.1 Pro Forma Financial Statments
TELECONNECT, Inc.
Pro Forma Financial Statements
(Unaudited)
On October 15, 2010, the Company completed its acquisition of 100% of Wilroot and its wholly owned subsidiary HEM (Wilroot/HEM). Previously Wilroot/HEM and the Company agreed for the purpose of the transaction to transfer effective control of Wilroot/HEM to the Company as of October 1, 2010. The Company issued 675,505 shares of its restricted common stock valued at $709,280 along with the assumption of debt and other liabilities of $7,740,102 for a total purchase consideration of $8,449,382.
HEM developed the age validation system “Ageviewers”. The Company’s existing subsidiaries MediaWizz and Giga are important parts of the Ageviewers system supply chain and combining them with Wilroot/HEM allows further integration of the system.
The acquisition was accounted for as a purchase transaction. As required by the applicable guidance in effect at the time of the acquisition, the Company valued all assets and liabilities acquired at their fair values on the date of acquisition. An independent valuation expert assisted the Company in determining these fair values. Accordingly, the assets and liabilities of the acquired entity were recorded at their estimated fair values at the date of the acquisition. The Company is currently completing its review of the valuation methods and procedures that were used therefore the purchase price allocation is preliminary. The following table presents the preliminary allocation of the purchase price to the assets acquired and liabilities assumed, and
based on their estimated fair values.
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Wilroot/HEM
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Current assets
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$ | 411,480 | ||
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Amount due from Teleconnect, Inc
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1,684,605 | |||
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Amount due from MediaWizz
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456,744 | |||
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Total current assets
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2,552,829 | |||
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Ageviewers software
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3,257,659 | |||
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Property and equipment
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350,485 | |||
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Terminal and kiosk hardware design
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690,347 | |||
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Patents and processes
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2,003,044 | |||
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Tradenames
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1,082,549 | |||
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Net assets
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9,936,913 | |||
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Purchase consideration
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8,449,382 | |||
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Excess of net assets over purchase consideration (bargain purchase)
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$ | 1,487,531 | ||
In connection with the acquisition the Company acquired the Ageviewers software and the Terminal and kiosk hardware designs. The Company valued the Ageviewers software based on replacement cost of development using current observable market rates for software engineers which resulted in a fair market value of $3,257,659. The terminal and kiosk hardware designs were valued based on replacement cost of development using current observable market rates for engineers which resulted in a fair market value of $690,347. The software and designs will be amortized over a useful life of 5 years.
1
The Company also acquired patents and processes associated with Ageviewers system as well as the Ageviewers trade name. The patents and processes were valued by the Company using the relief from royalty valuation technique which resulted in a fair market value of $2,003,044. The Ageviewers trade name was valued by the Company using the relief from royalty valuation technique which resulted in a fair market value of $1,082,549. The patents, processes and trade name are being amortized over a 10 year remaining life.
The fair value of the net assets acquired was in excess of the consideration paid by the Company, resulting in a "bargain purchase gain." Upon the determination that the Company was going to recognize a gain related to the bargain purchase, the Company reassessed its valuation assumptions utilized as part of the acquisition accounting. No adjustments to the acquisition accounting valuations were identified as a result of management’s reassessment. The events and circumstances allowing the Company to acquire Wilroot/HEM at a bargain were related to the ability of Wilroot/HEM to have access to public equity markets to raise funding for the rollout of Ageviewers in The Netherlands and the liquidity provided to the stockholders of Wilroot/HEM by gaining stock in the
Company.
The pro forma financial statements illustrate the effect of the acquisition (pro forma) on the Company's financial position and results of operations. The pro forma balance sheet as of September 30, 2010, is based on the historical balance sheets of the Company and Wilroot/HEM as of that date and assumes the acquisition took place on that date. The pro forma statements of operations for the years ended September 30, 2010 and 2009 are based on the historical statements of income of the Company and Wilroot/HEM for those periods. The pro forma statement of operations assumes the acquisition took place on October 1, 2008.
The unaudited pro forma financial statements may not be indicative of the actual results of the acquisition.
The accompanying pro forma financial statements should be read in connection with the historical financial statements of the Company and Wilroot/HEM.
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TELECONNECT, INC.
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PRO FORMA BALANCE SHEET
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(Unaudited)
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Teleconnect
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Wilroot/HEM
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Adjustment
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Pro Forma
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ASSETS
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CURRENT ASSETS:
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Cash and cash equivalents
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$ | 17,420 | $ | 79 | $ | - | $ | 17,499 | ||||||||
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Accounts receivable - trade
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36,276 | 5,826 | 42,102 | |||||||||||||
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Other receivables
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2,176,312 | (2,088,513 | ) | 87,799 | ||||||||||||
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Due from Giga Matrix Holding, B.V.
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361,441 | 235,427 | 596,868 | |||||||||||||
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Inventory, work in process (net of reserve for slow moving inventory
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- | |||||||||||||||
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of $187,478 and $139,109 at September 30, 2010 and 2009,respectively)
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1,076,580 | - | 1,076,580 | |||||||||||||
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Prepaid taxes
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8,278 | 55,466 | 63,744 | |||||||||||||
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Prepaid expenses
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5,224 | 79,724 | 84,948 | |||||||||||||
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Total current assets
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1,505,219 | 2,552,834 | (2,088,513 | ) | 1,969,540 | |||||||||||
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PROPERTY AND EQUIPMENT, NET
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7,120 | 350,485 | 3,948,006 | 4,305,611 | ||||||||||||
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OTHER ASSETS:
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Investment in Giga Matrix Holdings B.V.
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- | - | ||||||||||||||
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Goodwill
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424,346 | - | 424,346 | |||||||||||||
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Patents and tradenames, net
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130,003 | 2,955,590 | 3,085,593 | |||||||||||||
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Deferred taxes
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949,897 | (949,897 | ) | - | ||||||||||||
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Long-term notes receivable (net of allowance for bad debts
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of $558,136 and $560,974 at September 30, 2010 and 2009, respectively)
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- | |||||||||||||||
| $ | 1,936,685 | $ | 3,983,219 | $ | 3,865,186 | $ | 9,785,090 | |||||||||
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LIABILITIES AND STOCKHOLDERS' DEFICIT
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CURRENT LIABILITIES:
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Accounts payable - trade
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$ | 111,576 | $ | 312,381 | $ | - | $ | 423,957 | ||||||||
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Accrued liabilities
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Related Parties
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127,619 | - | 127,619 | |||||||||||||
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Other
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36,949 | 435,497 | 472,446 | |||||||||||||
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Notes payable
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300,256 | 22,366 | 322,622 | |||||||||||||
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Income Taxes payable
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80,000 | - | 80,000 | |||||||||||||
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Loans from related parties
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2,790,765 | 6,969,858 | (2,088,513 | ) | 7,672,110 | |||||||||||
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Total current liabilities
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3,447,165 | 7,740,102 | (2,088,513 | ) | 9,098,754 | |||||||||||
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STOCKHOLDERS' DEFICIT:
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Preferred stock; par value of $0.001, 5,000,000 shares
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authorized, no shares outstanding
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- | - | - | |||||||||||||
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Common stock; par value of $0.001, 500,000,000 shares authorized,
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4,953,700 shares outstanding
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4,954 | 50,720 | (50,044 | ) | 5,630 | |||||||||||
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Additional paid-in capital
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31,511,257 | - | 708,605 | 32,219,862 | ||||||||||||
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Accumulated deficit
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(30,019,592 | ) | (3,807,603 | ) | 5,295,138 | (28,532,057 | ) | |||||||||
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Accumulated other comprehensive loss
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(3,007,099 | ) | (3,007,099 | ) | ||||||||||||
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Total stockholders' deficit
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(1,510,480 | ) | (3,756,883 | ) | 5,953,699 | 686,336 | ||||||||||
| $ | 1,936,685 | $ | 3,983,219 | $ | 3,865,186 | $ | 9,785,090 | |||||||||
See accompanying notes to pro forma financial statements.
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| TELECONNECT, INC. |
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PRO-FORMA STATEMENT OF OPERATIONS
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FOR THE YEAR ENDED SEPTEMBER 31, 2010
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| (Unaudited) |
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Proforma
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Teleconnect
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Wilroot/HEM
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Adjustments
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Consolidated
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SALES
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$ | 254,446 | $ | 180,337 | $ | (248,221 | ) | $ | 186,562 | |||||||
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COST OF SALES
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282,333 | 248,362.00 | (248,221 | ) | 282,474 | |||||||||||
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GROSS LOSS (INCOME)
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(27,887 | ) | (68,025 | ) | - | (95,912 | ) | |||||||||
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OPERATING EXPENSES:
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Selling, general and administrative expenses
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968,146 | 2,142,393.00 | 3,110,539 | |||||||||||||
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Depreciation and amortization
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2,619 | 88,618.00 | 1,444,691 | 1,535,928 | ||||||||||||
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Total operating expenses
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970,765 | 2,231,011 | 1,444,691 | 4,646,467 | ||||||||||||
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LOSS FROM OPERATIONS
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(998,652 | ) | (2,299,036 | ) | (1,444,691 | ) | (4,742,379 | ) | ||||||||
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OTHER INCOME (EXPENSES):
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Interest income
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87 | 269,445.00 | 269,532 | |||||||||||||
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Grant income
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69,176.00 | 69,176 | ||||||||||||||
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Loss on investment
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(130,057 | ) | - | (130,057 | ) | |||||||||||
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Interest expense
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(68,111 | ) | (187,110.00 | ) | (255,221 | ) | ||||||||||
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LOSS BEFORE INCOME TAXES
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(1,196,733 | ) | (2,147,525 | ) | (1,444,691 | ) | (4,788,949 | ) | ||||||||
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BENEFIT FROM INCOME TAXES
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49,670 | 430,260 | (430,260 | ) | 49,670 | |||||||||||
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NET LOSS
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$ | (1,147,063 | ) | $ | (1,717,265 | ) | $ | (1,874,951 | ) | $ | (4,739,279 | ) | ||||
See accompanying notes to pro forma financial statements.
4
| TELECONNECT, INC. |
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PRO-FORMA STATEMENT OF OPERATIONS
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FOR THE YEAR ENDED SEPTEMBER 31, 2009
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| (Unaudited) |
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Teleconnect
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Wilroot/HEM
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Adjustments
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Proforma
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SALES
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$ | 361,989 | 158,704.00 | (129,660 | ) | 391,033.00 | ||||||||||
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COST OF SALES
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435,147 | 216,862.00 | (129,660 | ) | 522,349.00 | |||||||||||
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GROSS LOSS
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(73,158 | ) | (58,158 | ) | - | (131,316 | ) | |||||||||
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OPERATING EXPENSES:
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Selling, general and administrative expenses
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1,365,550 | 1,274,049.00 | 2,639,599.00 | |||||||||||||
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Depreciation and amortization
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31,794 | 16,850.00 | 1,442,667 | 1,491,311.00 | ||||||||||||
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Total operating expenses
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1,397,344 | 1,290,899 | 1,442,667 | 4,130,910 | ||||||||||||
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LOSS FROM OPERATIONS
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(1,470,502 | ) | (1,349,057 | ) | (1,442,667 | ) | (4,262,226 | ) | ||||||||
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OTHER INCOME (EXPENSES):
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Interest income
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21,652 | 7,504.00 | 29,156.00 | |||||||||||||
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Loss on investment
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(44,626 | ) | - | (44,626.00 | ) | |||||||||||
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Interest expense
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(54,396 | ) | (107,856.00 | ) | (162,252.00 | ) | ||||||||||
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LOSS BEFORE INCOME TAXES
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(1,547,872 | ) | (1,449,409 | ) | (1,442,667 | ) | (4,439,948 | ) | ||||||||
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BENEFIT FROM INCOME TAXES
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(50,000 | ) | (292,435.00 | ) | 292,435 | 0 | ||||||||||
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NET LOSS
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$ | (1,597,872 | ) | $ | (1,741,844 | ) | $ | (1,150,232 | ) | $ | (4,439,948 | ) | ||||
See accompanying notes to pro forma financial statements.
5
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Teleconnect Inc.
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Notes to Pro Forma Financial Statements
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Pro Forma Balance Sheet Adjustments
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The pro forma adjustments to the balance sheet are:
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| 1) |
To record issuance of 675,505 share for the purchase of Wilroot/HEM
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Property and equipment, net
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$ | 3,948,006 | |||||||
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Patents and tradenames, net
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2,955,590 | ||||||||
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Common stock Wilroot/HEM
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50,720 | ||||||||
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Deferred taxes
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$ | 949,897 | |||||||
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Common stock
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676 | ||||||||
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Additional paid-in capital
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708,605 | ||||||||
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Retained earnings
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5,295,138 | ||||||||
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To eliminate intercompany accounts
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Loans from related parties
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$ | 2,088,513 | |||||||
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Other receivables
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$ | 2,088,513 | |||||||
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Pro Forma Statements of Operations Adjustments
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| 5) |
To eliminated intercompany transactions FY2010
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Sales
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$ | 248,221 | |||||||
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Cost of sales
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$ | 248,221 | |||||||
| 6) |
Valuation allowance on tax benefit
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Tax benefit
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$ | 430,260 | |||||||
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To balance - net loss
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$ | 430,260 | |||||||
| 7) |
Amortization of intangible assets
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Amortization
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$ | 1,444,691 | |||||||
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To balance - net loss
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$ | 1,444,691 | |||||||
| 8) |
To eliminated intercompany transactions FY2009
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Sales
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$ | 129,660 | |||||||
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Cost of sales
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$ | 129,660 | |||||||
| 9) |
Valuation allowance on tax benefit
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Tax benefit
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$ | 292,435 | |||||||
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To balance - net loss
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$ | 292,435 | |||||||
| 10) |
Amortization of intangible assets
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Amortization
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$ | 1,442,667 | |||||||
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To balance - net loss
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$ | 1,442,667 | |||||||
6