UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 8-K/A
AMENDMENT NO. 1
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): December 5, 2003
(April 25, 2003)
PACEL CORP.
--------------------------------------------------------------------------------
(Exact Name of Registrant as Specified in its Charter)
Virginia 000-31935 54-171-2558
---------------------------- ---------------- ----------------------
(State or other jurisdiction (Commission (IRS Employer
of incorporation) file number) Identification No.)
7900 Sudley Road, Suite 619
Manassas, Virginia 20109
-------------------------------------- ------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (703) 257-4759
N/A
------------------------------------
(Former name or former address, if changes since last report)
Copy of Communications to:
Donald F. Mintmire
Mintmire & Associates
265 Sunrise Avenue, Suite 204
Palm Beach, FL 33480
Phone: (561) 832-5696
Fax: (561) 659-5371
Filed herewith are the financial statements and pro forma financial information
required to be filed by Item 7 of Form 8-K in connection with the Company's
acquisition of all of the assets of Asmara, Inc. ("Asmara"), including the stock
of its wholly-owned subsidiaries and the stock of Woodstock Lumber Sales, Inc.,
an affiliated company, as reported in the Current Report on Form 8-K, filed with
the Commission on June 13, 2003, to which this Amendment No. 1 relates:
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits
(a) Financial Statements of Business Acquired
Report of Independent Accountants F-1
Combined Balance Sheet of Asmara, Inc., its subsidiaries and
affiliates at December 31, 2002 F-2
Combined Statement of Operations and Accumulated Deficit of
Asmara, Inc., its subsidiaries and affiliates for the year
ended December 31, 2002 F-3
Combined Statement of Cash Flows of Asmara, Inc., its
subsidiaries and affiliates for the year ended December 31,
2002 F-4
Notes to Combined Financial Statements of Asmara, Inc., its
subsidiaries and affiliates for the year ended December 31,
2002 F-5
Combined Balance Sheet of Asmara, Inc., its subsidiaries and
affiliates as of September 30, 2003 (Unaudited) F-
Combined Statement of Operations of Asmara, Inc., its
subsidiaries and affiliates for the nine months ended
September 30, 2003 (Unaudited) F-
(b) Pro Forma Financial Information
Introduction to Unaudited Pro Forma Condensed Consolidated
Financial Information F-17
Unaudited Pro Forma Condensed Consolidated Statement of
Operations for Pacel Corp. and Asmara for the nine months
ended September 30, 2003 F-19
Unaudited Pro Forma Condensed Consolidated Statement of
Operations for Pacel Corp. and Asmara for the year ended
December 31, 2002. F-20
Notes to Unaudited Pro Forma Condensed Consolidated
Financial Information F-22
(c) Exhibits
Exhibit No. Description
------------ ----------------------------------------------------------
10.1 * LEASE AGREEMENT between W. Revel Bellamy, Natalie Bellamy and
Asmara, Inc., dated January 1, 2003
2
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Date: December 5, 2003
PACEL CORP.
/s/David E. Calkins
---------------------------------------------
David E. Calkins, President, CEO and Chairman
3
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To The Board of Directors and Stockholders
Asmara, Inc. and Affiliates
We have audited the accompanying combined balance sheet of Asmara, Inc. and
affiliates as of December 31, 2002 and the related combined statements of
operations and accumulated deficit and cash flows for the year then ended. These
combined financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the combined financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the combined financial statements. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the financial position of Asmara, Inc. and
affiliates as of December 31, 2002 and results of their operations and their
cash flows for the year then ended in conformity with generally accepted
accounting principles.
/s/Faulkner & Thompson, P.A.
Faulkner & Thompson, P.A.
226 Northpark Drive, Suite 110
Rock Hill, SC 29730
November 18, 2003
F-1
Asmara, Inc. and Affiliates
Combined Balance Sheet
December 31, 2002
ASSETS
Current Assets:
Accounts receivable $ 21,547
Due from related party 408,455
Workers compensation insurance deposit 138,928
568,930
-----------
Property and equipment, net of accumulated depreciation 50,727
-----------
Other Assets:
Goodwill 99,900
Other assets 7,618
107,518
-----------
Total assets $ 727,175
===========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current Liabilities:
Accounts payable and accrued expenses $ 114,078
Payroll tax and payroll related liabilities 1,192,732
Deferred client revenue 14,952
Due to related party 431,531
Note payable 52,906
Capital lease obligation 22,846
-----------
Total current liabilities 1,829,045
-----------
Capital lease obligation, net of current portion 15,351
-----------
Stockholders Equity (Deficit):
Common stock 11,250
Additional paid-in capital 75,000
Accumulated deficit (1,203,471)
-----------
Total stockholders' deficit (1,117,221)
-----------
Total liabilities and stockholders' equity $ 727,175
===========
See Notes to Combined Financial Statements.
F-2
Asmara, Inc. and Affiliates
Combined Statement of Operations and Accumulated Deficit
For the year ended December 31, 2002
Revenue $ 4,057,317
Cost of sales 2,870,845
------------
Gross profit 1,186,472
Operating costs and expenses:
Depreciation and amortization 19,800
Interest expense 17,486
Sales, general and administrative expenses 1,377,006
------------
Total operating costs and expenses 1,414,292
------------
Net loss from operations (227,820)
------------
Other expense:
Write off of related party receivable (597,060)
------------
Net loss $ (824,880)
Accumulated deficit, beginning of year (378,591)
------------
Accumulated deficit, end of year $ (1,203,471)
============
See Notes to Combined Financial Statements.
F-3
Asmara, Inc. and Affiliates
Combined Statement of Cash Flows
For the year ended December 31, 2002
Cash flows from operating activities:
Net loss $ (824,880)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Depreciation and amortization $ 19,800
Bad debts 597,060
Changes in assets and liabilities:
Accounts receivable 22,525
Workers compensation deposits (4,125)
Other assets (2,639)
Accounts payable 6,426
Payroll taxes and payroll related liabilities 585,471
Deferred revenue 14,952
Due to/from related parties (229,810)
------------
Net cash provided by operating activities 184,780
------------
Cash flows from investing activities:
Investment in subsidiaries (2,500)
Purchase of equipment (13,196)
Purchase of goodwill (99,900)
------------
Net cash used in investing activities (115,596)
------------
Cash flows from financing activities:
Principal payments on note payable (61,350)
Principal payments on capital lease obligation (7,834)
Net cash used in financing activities (69,184)
Net increase in cash and cash equivalents -0-
------------
Cash and cash equivalents, beginning of year -0-
Cash and cash equivalents, end of year $ -0-
============
Supplemental disclosures of cash flow information:
Cash paid during the year for interest $ 17,486
============
Non-cash investing and financing activities:
Purchase of equipment under capital lease obligation $ 46,031
============
See Notes to Combined Financial Statements.
F-4
Asmara, Inc. and Affiliates
Notes to the Combined Statements
December 31, 2002
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Business
Asmara, Inc. was incorporated in the State of North Carolina in 1997 and is
engaged in business as a professional employer organization (PEO), providing a
broad range of human resource functions including payroll and benefits
administration, health and workers' compensation insurance, as well as other
personnel services to employers in North Carolina and surrounding states.
Woodstock Lumber Sales, Inc. (dba Partners PEO of the Carolinas) was
incorporated in the State of Oklahoma in 1983 and is engaged as a professional
employer organization, providing a broad range of human resource functions
including payroll and benefits administration, health and workers' compensation
insurance, as well as other personnel services to employers primarily in South
Carolina and Oklahoma.
Able, Inc. primarily provided administrative services to the other affiliated
companies in 2002 and it was administratively dissolved in 2002.
Related Components, Inc. was incorporated in the State of North Carolina in
October 1993 and was engaged in business as a professional employer organization
(PEO) as well. The company was in the process of being dissolved at the end of
2002.
Asmara of Florida I, Inc. (formerly known as The Hood Company of Gainesville and
Accredited Solutions I, Inc.) was incorporated in the State of Florida in 1981
and is engaged in the business as a professional employer organization (PEO),
providing a broad range of human resources functions to employers in Central
Florida.
Asmara of Florida II, Inc. (formerly known as Accredited Solutions II, Inc.),
Asmara of Florida III, Inc. (formerly known as Accredited Solutions III, Inc.),
and Asmara of Florida IV, Inc. (formerly known as Accredited Solutions IV, Inc.)
were incorporated June 2001 in the State of Florida. These companies operate as
professional employer organizations providing a broad range of human resource
functions to employers in Central Florida.
During December 2002, the outstanding common stock of Asmara of Florida I, Inc.,
Asmara of Florida II, Inc., Asmara of Florida III, Inc., and Asmara of Florida
IV, Inc. was purchased by Asmara, Inc. See Note 5 for additional details
regarding the purchase.
These affiliated companies are reported separately for income tax purposes and
combined for financial reporting purposes.
F-5
Asmara, Inc. and Affiliates
Notes to the Combined Statements
December 31, 2002
Principles of Combination
The accompanying combined financial statements include the accounts of Asmara,
Inc. (including its subsidiaries: Asmara of Florida I, Inc., Asmara of Florida
II, Inc., Asmara of Florida III, Inc., and Asmara of Florida IV, Inc.), as well
as Woodstock Lumber Sales, Inc., Able, Inc. and Related Components, Inc. (the
"Company"). These entities are related through common ownership and control.
Principles of Consolidation
The combined financial statements include the accounts of Asmara, Inc. and its
wholly owned subsidiaries: Asmara of Florida I, Inc., Asmara of Florida II,
Inc., Asmara of Florida III, Inc., and Asmara of Florida IV, Inc. All
significant intercompany accounts and transactions have been eliminated.
Cash Equivalents
The Company considers all highly liquid investments with maturities of three
months or less as cash equivalents.
Accounts Receivable
The Company considers accounts receivable to be fully collectible, and
accordingly, no allowance for doubtful accounts is required. If accounts become
uncollectible, this will be charged to operations when the determination is
made.
Goodwill
Goodwill represents the excess of cost over fair value of the net assets
acquired through acquisitions. In accordance with Statement of Financial
Accounting Standards ("SFAS") No. 142 issued in June 2001, goodwill has not been
amortized and the Company evaluates the goodwill on an annual basis for
impairment. No impairment was recorded during the year ended December 31, 2002.
Revenue and Expense Recognition
The Company recognizes revenue and expenses using the accrual method of
accounting and, as such, reports revenue and expenses in the period in which the
revenue and expense are incurred rather than when cash is received and expenses
paid.
F-6
Asmara, Inc. and Affiliates
Notes to the Combined Statements
December 31, 2002
The gross billings that the Company charges its clients under its Professional
Services Agreement include each worksite employee's gross wages, payroll taxes,
workers' compensation premiums, a service fee and, to the extent elected by the
clients, health and welfare benefit plan costs and other ancillary fees. The
Company's service fee, which is computed as a percentage of gross wages, is
intended to yield a profit to the Company and to cover the costs of certain
employment-related employer taxes and administrative and field services provided
by the Company to the client, including payroll administration, record keeping,
risk management, human resources, and regulatory compliance consultation. The
component of the service fee related to administration varies according to the
size of the client, the amount and frequency of payroll payments and the method
of delivery of such payments. The component of the service fee related to
unemployment insurance is based, in part, on the client's historical claims
experience. All charges by the Company are invoiced along with each periodic
payroll delivered to the client.
The Company reports revenue from service fees in accordance with Emerging Issues
Task Force ("EITF") No. 99-19, Reporting Revenue Gross as a Principal versus Net
as an Agent. The Company reports as revenues, on a gross basis, the total amount
billed to clients for administrative service fees, payroll-related taxes,
retirement plan fees and workers' compensation premium. The Company reports
revenue on the gross basis for these fees because the Company is the primary
obligor and deemed to be the principal in the transactions under EITF No. 99-19.
The Company reports revenues on a net basis for the amounts billed to clients
for worksite employee salaries and wages, less amounts paid to worksite
employees for these salaries and wages.
Income Taxes
Asmara, Inc. and Able, Inc. have elected to be taxed under the provision of
Subchapter S of the Internal Revenue Code. Under these provisions, the Company
does not pay corporate income taxes on its taxable income or is not allowed a
net operating loss carryover or carryback as a deduction. Instead, the
stockholders are liabile for individual income taxes on their respective share
of the Company's taxable income or loss on their individual tax returns.
The provision for income taxes includes the effects of transactions reported in
the financial statements and includes taxes currently due and deferred taxes for
Woodstock Lumber Sales, Inc., Asmara of Florida I, Inc., Asmara of Florida II,
Inc., Asmara of Florida III, Inc. and Asmara of Florida IV, Inc. Deferred income
taxes relate to net operating losses. A valuation allowance has been calculated
for estimated tax benefits that may not be realized.
F-7
Asmara, Inc. and Affiliates
Notes to the Combined Statements
December 31, 2002
Property and Equipment
Property is stated at cost less accumulated depreciation. The cost of additions
are capitalized and expenditures for repairs and maintenance are expensed as
incurred. Depreciation is computed using accelerated and straight-line methods.
Use of Estimates
The preparation of combined financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions. These estimates and assumptions affect the reported amount of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the combined financial statements and the reported amounts of
revenue and expenses during the reporting period. Actual results could differ
from those estimates.
NOTE 2 - PROPERTY AND EQUIPMENT
Property and equipment are summarized as follows at December 31, 2002:
Equipment under capital lease $ 46,031
Office furniture and equipment 41,806
Computer software 25,000
112,837
Less accumulated depreciation 62,110
----------
$ 50,727
Depreciation expense for the year ended December 31, 2002 was $19,800.
F-8
Asmara, Inc. and Affiliates
Notes to the Combined Statements
December 31, 2002
NOTE 3 - STOCKHOLDER'S EQUITY
Stockholder's equity of Asmara, Inc., Woodstock Lumber Sales, Inc., and Related
Components, Inc. is summarized as follows at December 31, 2002:
Asmara, Inc.
Common stock - no par value; 250,000 shares
authrorized, 75,000 shares issued and
outstanding $ 9,750
Accumulated deficit (1,218,637)
---------------
Total stockholder's equity (deficit) $ (1,208,887)
===============
Woodstock Lumber Sales, Inc.
Common stock - $1 par value; 100,000 shares
authorized, 500 shares issued and outstanding $ 500
Additional paid in capital 75,000
Retained earnings 6,976
---------------
Total stockholder's equity $ 82,476
===============
Related Components, Inc.
Common stock - no par value; 1,000 shares
authorized, 100 shares issued and outstanding $ 1,000
Retained earnings 8,190
---------------
Total stockholder's equity $ 9,190
===============
F-9
Asmara, Inc. and Affiliates
Notes to the Combined Statements
December 31, 2002
NOTE 4 - INCOME TAXES
The provision (benefit) for income taxes by components which are subject to
income taxes for the year ended December 31, 2002 consisted of the following:
Woodstock Related Asmara of
Lumber Sales, Inc. Components, Inc. Florida I, Inc. Total
----------------- --------------- -------------- ------------
Current $ -0- $ -0- $ -0- $ -0-
Deferred -0- -0- (1,000) (1,000)
Less valuation
adjustment -0- -0- 1,000 1,000
----------------- --------------- -------------- ------------
$ -0- $ -0- $ -0- $ -0-
The component of the deferred tax asset at December 31, 2002 is as follows:
Net operating loss carryforward $ 1,000
Valuation allowance (1,000)
---------------
$ -0-
The Company's deferred tax asset related to a net operating loss. A valuation
allowance has been established as the Company does not have a history of
profitability.
At December 31, 2002, the Company has available unused operating loss
carryforwards of approximately $4,000, which may be applied against future
taxable income expiring through 2022.
NOTE 5 - PURCHASE OF COMPANIES
During 2002, all of the outstanding common stock of Asmara of Florida I, Inc.,
Asmara of Florida II, Inc., Asmara of Florida III, Inc. and Asmara of Florida
IV, Inc. was purchased by Asmara, Inc. for $100,000. The purchase method was
used to account for the purchase. The purchase price was allocated as follows:
Cash $ 100
Goodwill 99,900
-----------
$ 100,000
F-10
Asmara, Inc. and Affiliates
Notes to the Combined Statements
December 31, 2002
NOTE 6 - CONCENTRATIONS OF CREDIT RISK
Financial instruments that potentially subject the Company to concentrations of
credit risk consist principally of cash and trade accounts receivable. To
mitigate risk associated with cash balances, the Company places its cash in high
credit quality financial institutions. At certain times, the Company has cash
balances in excess of federally insured limits.
NOTE 7 - RETIREMENT PLAN
The Company maintains a multiple-employer 401(k) Profit Sharing Plan open to
enrollment of employees based on client-elected participation and to all
eligible internal employees who have been employed by the Company for three
months and meet certain other requirements. The plan is a multi-employer plan
that became effective on April 1, 2000. Each of the Company's clients that have
adopted the plan have the ability to adjust the plan participation guidelines to
meet the client's specific needs as allowed by the governing plan document.
Generally, employees can defer a portion of their salary into the Plan, not to
exceed $11,000 for 2002. The Company may make a matching contribution up to 50%
of the employee's elective deferral (up to 6%) for each plan year. The Company
made a matching contribution of approximately $11,000 for the year ended
December 31, 2002.
NOTE 8 - NOTE PAYABLE
The note payable at December 31, 2002 is as follows:
Unsecured note payable to individual due in
monthly payments of $5,694 including
interest at 8% through October 2003 $ 52,906
Less current portion (52,906)
---------------
$ -0-
F-11
Asmara, Inc. and Affiliates
Notes to the Combined Statements
December 31, 2002
NOTE 9 - CAPITAL LEASE OBLIGATION
The Company leases certain equipment under a capital lease obligation. The lease
meets the criteria of capital leases and has been recorded as such. Included in
the property and equipment account is the cost of $46,031 and accumulated
depreciation of $11,508.
Future minimum lease payments under the capital lease, including the present
value of minimum lease payments, subsequent to December 31, 2002 are as follows:
2003 $ 29,369
2004 17,132
46,501
Less amount representing interest 8,304
38,197
Less current installments of obligations under
capital lease 22,846
------------
Long-term obligation under capital lease $ 15,351
NOTE 10 - FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107 requires disclosures about
the fair value for all financial instruments, whether or not recognized, for
financial statement purposes. Disclosures about fair value of financial
instruments are based on pertinent information available to management as of
December 31, 2002. Accordingly, the estimates presented in these statements are
not necessarily indicative of the amounts that could be realized on disposition
of financial instruments.
Management estimates the fair value of receivables, accounts payable and accrued
expenses and notes payable approximate the carrying value due to the short
maturity of these instruments.
F-12
Asmara, Inc. and Affiliates
Notes to the Combined Statements
December 31, 2002
NOTE 11 - COMMITMENTS AND CONTINGENCIES
In 2002, the Company rented office space from a related party under a
month-to-month verbal agreement. Subsequent to the year ended December 31, 2002,
the Company entered into a two year operating lease with the related party which
expires December 2004.
The Company also leases certain office equipment under noncancelable operating
leases expiring through March 2007.
Rent expense for office facilities which was paid to the related party for the
year ended December 31, 2002 was $48,000. Rent expense for office equipment
charged to operations for the year ended December 31, 2002 was approximately
$17,000. Future minimum rentals are as follows for the years ended December 31:
Related
Party Other Total
------------ ---------- ------------
2003 $ 60,000 $ 14,298 $ 74,298
2004 60,000 14,298 74,298
2005 - 12,859 12,859
2006 - 9,980 9,980
2007 - 2,495 2,495
------------ ---------- ------------
$ 120,000 $ 53,930 $ 173,930
The Company is, from time to time, involved in lawsuits arising in the normal
course of business that, in the opinion of management, will not have a material
effect on the Company's results of operation.
At December 31, 2002, the Company has recorded on its balance sheet a liability
of approximately $830,000 for payroll tax withholdings with various tax
authorities related to an affiliated company that ceased operations as of
December 31, 2002. The Company has obtained legal counsel and anticipates that
it will be able to successfully reach a settlement for an amount less than the
current amount recorded, although no gain contingency has been recorded.
F-13
Asmara, Inc. and Affiliates
Notes to the Combined Statements
December 31, 2002
NOTE 12 - RELATED PARTY TRANSACTIONS
During 2002, the Company wrote off receivables from affiliated companies
(through common ownership) totaling approximately $597,000. At the present time,
these companies are not operating companies and they do not have the ability to
pay these receivables.
At December 31, 2002, the Company owes a related party $431,531 and this same
party owes the Company $408,455. As described in Note 11, the Company leases
office space from the related party.
NOTE 13 - SUBSEQUENT EVENTS
On April 25, 2003, the stockholder of Asmara, Inc. (the "Seller") signed an
agreement to sell: all intangible personal property, all cash on deposit, all
accounts receivable, all contracts with customers and suppliers, all
governmental authorizations, all insurance programs offered by the Seller to its
customers, all interest in securities named of all subsidiaries (including
Asmara of Florida I, Inc., Asmara of Florida II, Inc., Asmara of Florida III,
Inc. and Asmara of Florida IV, Inc.) as well as certain other assets to The
Resourcing Solutions Group, Inc. (the "Buyer"). In consideration for the assets
purchased, the Buyer will assume approximately $1,955,000 of debt of Asmara,
Inc. (and its subsidiaries) including $430,000 due to the shareholder of Asmara,
Inc. and the Seller will receive approximately $5,000 in cash. Thereafter, on an
annual basis, the Buyer shall deliver options to the Seller as follows:
a. 500,000 shares of the common stock of the Buyer, at a strike price of $0.03
per share should Asmara, Inc. achieve an average EBITDA (Earnings Before
Interest, Taxes, Depreciation and Amortization) of greater than 1% and less
than 2% of sales during the 24 months following the closing, or
b. 1,000,000 shares of the common stock of the Buyer, at a strike price of
$0.03 per share should Asmara, Inc. achieve an average EBITDA of greater
than 2% of sales over the 24 months following the closing.
Also, on April 25, 2003, the stockholder of Woodstock Lumber Sales, Inc. (the
"Seller") signed an agreement to sell 100% of the outstanding capital stock of
the Seller to The Resourcing Solutions Group, Inc. (the "Buyer"). The Buyer will
assume approximately $35,000 in debt in connection with the purchase. The Seller
will receive $1,000 in cash.
F-14
Asmara, Inc. and Affiliates
Combined Balance Sheet
September 30, 2003
(Unaudited)
ASSETS
Current Assets:
Cash $ 1,115
Other receivables 2,150
Prepaid expenses 29,617
Workers compensation insurance deposit 96,342
-------------
Total current assets 129,224
Property and equipment, net of accumulated depreciation 70,888
Other Assets:
Goodwill 2,279,376
Deposits 5,250
-------------
Total other assets 2,284,626
-------------
Total assets $ 2,484,738
=============
LIABILITIES AND STOCKHOLDERS' EQUITY DEFICIT
Current Liabilities:
Accounts payable and accrued expenses $ 119,220
Payroll tax and payroll related liabilities 1,985,750
Current portion of leases payable 21,850
Current portion of long term debt 135,848
Income taxes payable 3,500
Loans payable to officers/stockholders 378,780
-------------
Total current liabilities 2,644,948
-------------
Long-term debt 22,000
Commitments and contingencies -
Common stock 9,750
Retained deficit (191,960)
-------------
Total stockholders' equity (deficit) (182,210)
-------------
Total liabilities and stockholders' equity $ 2,484,738
=============
F-15
Asmara, Inc. and Affiliates
Combined Statement of Operations
For the Nine Months ended September 30, 2003
(Unaudited)
Revenue $ 2,130,564
Cost of sales 1,608,807
-------------
Gross profit 521,756
-------------
Operating costs and expenses:
Depreciation and amortization 5,000
Interest expense 5,713
General and administrative expenses 1,097,403
-------------
Total operating costs and expenses 1,108,116
-------------
Net loss from operations $ (586,359)
=============
F-16
INTRODUCTION TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL INFORMATION
On April 30, 2003, The Resourcing Solutions Group, Inc. (the "Company"), a
majority-owned subsidiary of Pacel Corp., acquired substantially all of the
assets of Asmara, Inc. ("Asmara"), pursuant to an Asset Purchase Agreement dated
April 25, 2003 and 100% of the outstanding common stock of Woodstock Lumber
Sales, Inc. ("Woodstock"), pursuant to a Stock Purchase Agreement dated as of
April 25, 2003 (collectively the "Agreements"), by and between the Company,
Asmara, Woodstock and W. Revel Bellamy, as the sole shareholder of Asmara and
Woodstock.
Pursuant to the Agreements, the selected assets of Asmara sold include: all
intangible personal property, all cash on deposit, all non-related party
accounts receivable, all contracts with customers and suppliers, all
governmental authorizations, all insurance programs offered by the Seller to its
customers, all interest in securities named of all subsidiaries (including
Asmara of Florida I, Inc., Asmara of Florida II, Inc., Asmara of Florida III,
Inc. and Asmara of Florida IV, Inc.) as well as certain other assets. In
consideration for the assets purchased, the Company will assume approximately
$1,955,000 of debt of Asmara including $430,000 due to the sole shareholder of
Asmara, Inc. and Asmara received approximately $5,000 in cash. Thereafter, on an
annual basis, the Buyer shall deliver options to W. Revel Bellamy, as sole
shareholder of Asmara, the following:
c. 500,000 shares of the common stock of the Buyer, at a strike price of $0.03
per share should Asmara achieve an average EBITDA (Earnings Before
Interest, Taxes, Depreciation and Amortization) of greater than 1% and less
than 2% of sales during the 24 months following the closing, or
d. 1,000,000 shares of the common stock of the Buyer, at a strike price of
$0.03 per share should Asmara achieve an average EBITDA of greater than 2%
of sales over the 24 months following the closing.
Pursuant to the Agreements, the stockholder of Woodstock sold 100% of the
outstanding capital stock of Woodstock to the Company. The Company assumed
approximately $35,000 in debt in connection with the purchase and the Seller
received $1,000 in cash.
The acquisition was accounted for using the purchase method of accounting. The
purchase price was allocated to the estimated fair value of the assets acquired
and liabilities assumed. The estimated fair value of the assets and liabilities
assumed approximated the historical cost basis, and the Company recorded $70,000
of fees and $1,859,858 of goodwill in conjunction with this acquisition. The
consideration paid by the Company was funded by the Company existing equity
lines of credit obtained through the issuance of common stock.
F-17
INTRODUCTION TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL INFORMATION
(continued)
The following unaudited pro forma condensed consolidated statement of operations
for the year ended December 31, 2002 gives effect to the acquisition as if it
had occurred on January 1, 2002. The following unaudited pro forma condensed
consolidated statement of operations for the nine months ended September 31,
2003 gives effect to the acquisition as if it had occurred on January 1, 2003
and presents the allocation of the purchase price over historical net book value
and is for illustrative purposes only and is not necessarily indicative of the
operating results or financial position that would have occurred if the purchase
has been consummated on such dates, nor is it necessarily indicative of future
operating results or financial position. Actual fair values were based on
financial information as of the acquisition date.
The pro forma adjustments represent, in the opinion of management, all
adjustments necessary to present the Company's pro forma combined financial
position and results of its combined operations in accordance with Article 11 of
Regulation S-X of the Securities Exchange Act of 1934 based upon available
information and certain assumptions considered reasonable under the
circumstances.
The unaudited pro forma combined financial information should be read in
conjunction with the audited financial statements of the Company and the notes
thereto.
F-18
Pacel Corp.
Unaudited Pro Forma Consolidated Condensed Statement of Operations
For the Nine Months ended September 30, 2003
Pacel Pro Forma Pro Forma
Corp. Asmara Adjustments Consolidated
----------- ------------ -------------- -------------
Revenue $ 2,507,291 $ 877,200 $ - $ 3,384,491
Cost of sales 1,898,953 748,334 - 2,647,287
----------- ------------ -------------- -------------
Gross profit 608,338 128,866 - 737,204
Depreciation and
amortization 15,722 10,436 (2,262)(1) 23,896
Interest expense 125,015 4,572 - 129,587
Financing expense 393,818 - - 393,818
Sales, general and
administrative 2,163,543 345,572 - 2,509,115
----------- ------------ -------------- -------------
Total operating costs 2,698,098 360,580 (2,262) 3,056,416
Other income (expenses) - - - -
----------- ------------ -------------- -------------
Net loss $(2,089,760) $ (231,714) $ 2,262 $ (2,319,212)
=========== ============ ============== =============
Net loss per share:
Basic $ (0.01) $ (0.01)
Diluted $ (0.01) $ (0.01)
Weighted average shares
outstanding:
Basic 193,620,431 193,620,431
Diluted 193,620,431 193,620,431
The accompanying notes are an integral part to these financial statements.
F-19
Pacel Corp.
Unaudited Pro Forma Consolidated Condensed Statement of Operations
For the year ended December 31, 2002
Pacel Pro Forma Pro Forma
Corp. Asmara Adjustments Consolidated
----------- ------------ -------------- -------------
Revenue $ 298,419 $ 4,057,317 - $ 4,355,736
Cost of sales 281,339 2,870,845 - 3,152,184
----------- ------------ -------------- -------------
Gross profit 17,080 1,186,472 - 1,203,552
Research and development 9,121 - - 9,121
Depreciation and
amortization 55,618 19,800 4,728 (1) 80,146
Interest expense 141,450 17,486 - 158,936
Financing expenses 235,509 - - 235,509
Sales, general and
administrative 4,367,365 1,377,006 - 5,526,058
----------- ------------ -------------- -------------
Total operating costs 4,809,063 1,414,292 4,728 6,228,083
Other income (expenses):
Write-off of related
party receivable - (597,060) - (597,060)
----------- ------------ -------------- -------------
Loss before extraordinary
Items (4,791,183) (824,880) (4,728) (5,621,591)
----------- ------------ -------------- -------------
Gain on extinguishment
of debt 426,150 - - 426,150
Discontinued operations:
Loss from operations (220,268) - - (220,268)
Gain on disposal 177,817 - - 177,817
Cumulative effect of
accounting change (407,049) - - (407,049)
----------- ------------ -------------- -------------
Net loss $(4,815,333) $ (824,880) $ (4,728) $ (5,644,941)
=========== ============ ============== =============
F-20
Pacel Corp.
Unaudited Pro Forma Consolidated Condensed Statement of Operations
For the year ended December 31, 2002
Pacel Pro Forma Pro Forma
Corp. Asmara Adjustments Consolidated
----------- ------------ -------------- -------------
Net loss per share:
Basic $ (0.33) $ (0.38)
Diluted $ (0.33) $ (0.38)
Weighted average shares
outstanding:
Basic 14,714,561 14,914,561
Diluted 14,714,561 14,914,561
The accompanying notes are an integral part to these financial statements.
F-21
Pacel Corp.
Notes to the Unaudited Pro Forma Condensed Consolidated Financial Information
The pro forma adjustments give effect to the acquisition of Asmara and Woodstock
as if the transaction was consummated on January 1, 2003. The pro forma
adjustments are as follows:
(1) To reflect adjustment of depreciation of fixed assets.
F-22