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Microcap & Penny Stocks : Zulu-tek, Inc. (ZULU) -- Ignore unavailable to you. Want to Upgrade?

To: aleta who wrote (14856)	10/15/1998 5:07:00 PM
From: PartyTime	Read Replies (2) \| Respond to of 18444

But you can't access it, Aleta, due to a 12-hour website update. Can you summarize? I was informed that there is a loss of three million. Did you save it? Can you print it here?

To: aleta who wrote (14856)	10/15/1998 5:30:00 PM
From: aleta	Respond to of 18444

1 ENHANCED SERVICES COMPANY, INC. AND CONSOLIDATED SUBSIDIARY BALANCE SHEETS (Unaudited) August 31 November 30 1998 1997 ----------- ----------- Current Assets Cash in bank $ 63,059 $ 262,510 Inventory 254,826 499,814 Accounts receivable, net of allowance for doubtful accounts 585,178 624,671 Other receivables 2,333.249 Other current assets 177,391 145,173 ----------- ----------- Total Current Assets 3,413,703 1,532,168 Property and equipment, net of accumulated depreciation 108,661 355,868 Goodwill, net of accumulated amortization 0 710,304 Investment in Zulu-tek, Inc. 4,045,000 0 Other assets 19,708 92,079 ----------- ----------- Total Assets $ 7,587,072 $ 2,690,419 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities Accounts payable and accrued expenses $ 1,127,895 $ 669,326 Notes payable, current portion 908,500 517,261 Other current liabilities 106,945 7,782 ----------- ----------- Total Current Liabilities 2,143,340 1,194,369 Notes payable, net of current portion 2,266,249 -- ----------- ----------- Total Liabilities 4,409,589 1,194,369 ----------- ----------- Stockholders' Equity: Preferred stock - $.001 par value 5,000,000 shares authorized, 8,000 issued and outstanding 8.6% cumulative preferred (Liquidation preference of $800,000) 8 -- Preferred stock - $3.00 par value 3,000,000 -- Common stock - $.001 par value, 15,000,000 shares authorized; 1,123,174 shares issued and outstanding 3,208 1,103 Additional paid-in capital 5,170,806 3,229,957 Retained earnings (4,996,539) (1,735,041) ----------- ----------- Total Stockholders' Equity 3,177,483 1,496,050 ----------- ----------- Total Liabilities and Stockholders' Equity $ 7,587,072 $ 2,690,419 =========== =========== The accompanying notes are an integral part of the financial statements. 2 ENHANCED SERVICES COMPANY, INC. AND CONSOLIDATED SUBSIDIARY CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) Three Months Three Months Ended Ended August 31 August 31 1998 1997 ----------- ----------- Revenue: Sales $ 563,314 $ 1,477,284 Cost of sales (exclusive of depreciation and salaries shown separately below) 134,010 749,687 ----------- ----------- Gross Profit 429,304 727,597 ----------- ----------- Operating Expenses Salaries 242,207 584,283 Advertising and promotion 5,156 82,701 Contract services 45,044 107,298 Rent 131,114 98,997 Travel and entertainment 17,730 44,640 Depreciation/amortization 21,300 55,378 Other operating expenses 422,731 420,063 ----------- ----------- Total Operating Expenses 885,282 1,393,360 ----------- ----------- Net Operating (Loss) (455,978) (665,763) Interest Expense (14,311) (28,391) Gain from disposition of property -- 719,562 Other Expense (600,000) -- Other Income 19,233 5,971 ----------- ----------- Net income (loss) $(1,051,056) $ 31,379 =========== =========== Provision for preferred dividends 17,200 17,201 ----------- ----------- Net Income (Loss) to Common Shareholders $(1,068,256) $ 14,178 =========== =========== Net Income (Loss) per Common Share $ (.34) $ .01 =========== =========== Weighted Average Shares Outstanding 3,096,408 2,233,014 =========== =========== The accompanying notes are an integral part of the financial statements. 3 ENHANCED SERVICES COMPANY, INC. AND CONSOLIDATED SUBSIDIARY CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) Nine Months Nine Months Ended Ended August 31 August 31 1998 1997 ----------- ----------- Revenue: Sales $ 2,675,226 $ 4,533,411 Cost of sales (exclusive of depreciation and salaries shown separately below) 1,113,331 1,961,457 ----------- ----------- Gross Profit 1,561,895 2,571,954 ----------- ----------- Operating Expenses Salaries 1,370,753 1,664,493 Advertising and promotion 23,680 207,322 Contract services 265,781 185,766 Rent 349,025 266,984 Travel and entertainment 70,809 102,018 Depreciation/amortization 150,033 163,921 Other operating expenses 1,081,212 1,149,067 ----------- ----------- Total Operating Expenses 3,311,293 3,739,571 ----------- ----------- Net Operating (Loss) (1,749,398) (1,167,617) Interest Expense (41,144) (66,925) Gain from disposition of property -- 719,562 Other Expense (1,431,624) -- Other Income 33,050 94,982 ----------- ----------- Net (loss) $(3,189,116) $ (419,998) =========== =========== Provision for preferred dividends 51,600 45,867 ----------- ----------- Net (Loss) to Common Shareholders $(3,240,716) $ (465,865) =========== =========== Net Income (Loss) per Common Share $ (1.05) $ (.21) =========== =========== Weighted Average Shares Outstanding 3,096,408 2,233,014 =========== =========== The accompanying notes are an integral part of the financial statements. 4 ENHANCED SERVICES COMPANY, INC. AND CONSOLIDATED SUBSIDIARIES CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY From November 30, 1997 through Aug 31, 1998 (Unaudited) Common Stock Additional Preferred Stock Paid-in No./Shares Amount No./Shares Amount Capital ---------- ----------- ---------- ----------- ----------- Balance at November 30, 1997 8,000 $ 8 1,125,489 $ 1,126 $ 3,229.957 Securities issued on acquisition of Zulu-tek Interest: Common Stock 220,000 220 1,044,779 Preferred shares, $3.00 par value 1,000,000 3,000,000 Common stock issued for: a) Exercise of ESOP 6,670 7 29,382 b) Exercise of warrants 139,500 140 540,365 1:1 stock dividend at May 22, 1998 1,492,580 1,493 (1,493) Common stock issued for: a) Exercise of warrants 168,750 168 273,205 b) Consulting services 54,667 55 54,611 Preferred stock dividends Net (loss) for the nine months ended Aug 31, 1998 --------- ----------- --------- ----------- ----------- Balance 1,008,000 $ 3,000,008 3,207,656 $ 3,209 $ 5,170,806 ========= =========== ========= =========== =========== Accumulated (Deficit) Total ----------- ----------- Balance at November 30, 1997 $(1,755,823) $1,475,268 Securities issued on acquisition of Zulu-tek Interest: Common Stock 1,044,999 Preferred shares, $3.00 par value 3,000,000 Common stock issued for: a) Exercise of ESOP 29,389 b) Exercise of warrants 540,505 1:1 stock dividend at May 22, 1998 Common stock issued for: a) Exercise of warrants 273,373 b) Consulting services 54,666 Preferred stock dividends (51,601) (51,601) Net (loss) for the nine months ended Aug 31, 1998 (3,189,116) (3,189,116) ----------- ----------- Balance $(4,996,540) $ 3,177,483 =========== =========== The accompanying notes are an integral part of the financial statements. 5 ENHANCED SERVICES COMPANY, INC. AND CONSOLIDATED SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) Three Months Three Months Ended Ended August 31 August 31 1998 1997 ----------- ----------- Cash Flows from Operating Activities: Net income (loss) $(1,068,256) $ 14,178 Adjustments to reconcile net income to net cash used in operating activities Depreciation and amortization 21,300 94,840 (Decrease) in accounts payable and accrued expenses 314,156 (133,949) (Increase) decrease in accounts receivable (1,487,406) (11,844) (Increase) decrease in inventory 10,993 70,925 Other, net 62,325 (124,271) ----------- ----------- Net Cash (Used in) Operating Activities (2,146,888) (90,121) ----------- ----------- Cash Flows from Investing Activities: (Purchases) of property and equipment 4,309 -- Disposition of property -- 814,603 ----------- ----------- Net Cash Provided by (Used in) Investing Activities 4,309 814,603 ----------- ----------- Cash Flows from Financing Activities: (Repayment) from notes and mortgages payable -- (606,678) Proceeds from notes payable 1,724,693 -- Common stock issued 365,140 -- ----------- ----------- Net Cash Provided by (Used in) Financing Activities 2,089,833 (606,678) ----------- ----------- Increase (Decrease) in cash 52,746 117,804 Cash, Beginning of Period 10,313 307,858 ----------- ----------- Cash, End of Period $ 63,059 $ 425,662 =========== =========== Interest Paid $ 14,311 $ 28,391 =========== =========== Income Taxes Paid $ -- $ -- =========== =========== The accompanying notes are an integral part of the financial statements. 6 ENHANCED SERVICES COMPANY, INC. AND CONSOLIDATED SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) Nine Months Nine Months Ended Ended August 31 August 31 1998 1997 ----------- ----------- Cash Flows from Operating Activities: Net (loss) $(3,240,716) $ (465,865) Adjustments to reconcile net income to net cash used in operating activities Write down of goodwill 710,304 Depreciation and amortization (181,821) 282,307 Increase (decrease) in accounts payable and accrued expenses 458,569 (196,714) (Increase) decrease in accounts receivable (2,293,756) 215,077 (Increase) in inventory 244,988 (152,393) Other, net (66,945) (153,926) ----------- ----------- Net Cash (Used in) Operating Activities (4,369,377) (471,514) ----------- ----------- Cash Flows from Investing Activities: Investment in Zulu-tek, Inc. (4,045,000) Purchases of property and equipment and other disposition of property 613,381 684,455 ----------- ----------- Net Cash Provided by (Used in) Investing Activities (3,431,619) 684,455 ----------- ----------- Cash Flows from Financing Activities: (Repayment) of notes payable (8,761) (771,257) Preferred stock issued 3,000,000 767,546 Proceeds from notes and mortgage payables 2,666,249 -- Common stock issued 1,944,057 60,000 ----------- ----------- Net Cash Provided by Financing Activities 7,601,545 56,289 ----------- ----------- Increase (decrease) in cash (199,451) 269,230 Cash, Beginning of Period 262,510 156,432 ----------- ----------- Cash, End of Period $ 63,059 $ 425,662 =========== =========== Interest Paid $ 41,144 $ 66,925 =========== =========== Income Taxes Paid $ -- $ -- =========== =========== The accompanying notes are an integral part of the financial statements.

To: aleta who wrote (14856)	10/15/1998 5:34:00 PM
From: aleta	Respond to of 18444

7 ENHANCED SERVICES COMPANY, INC. AND CONSOLIDATED SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS August 31, 1998 and 1997 (1) Organization Enhanced Services Company, Inc. (the Company) a Colorado corporation, was incorporated in 1987. The Company began, in May 1998, consolidating its facilities in North Bergan, New Jersey and Houston, Texas into the Irvine, California facility. The move was completed by the end of July 1998. The Company closed its NB Engineering, Inc. subsidiary in Crofton, Maryland in May 1998. The Company's administrative offices also were relocated from Houston, Texas to El Segundo and subsequently to Los Angeles, California in May 1998. The consolidated financial statements include the accounts of ESC and subsidiaries since acquisition or formation. All inter-company accounts and transactions have been eliminated. (2) Unaudited Statements The balance sheet as of August 31, 1998, the statements of income for the three and nine month periods ended August 31, 1998 and August 31, 1997 and the statement of cash flow for the three and nine month period ended August 31, 1998 and August 31, 1997 have been prepared by the Registrant without audit. In the opinion of management, all adjustments (which include only normal recurring adjustments) necessary to present fairly the financial position, results of operations and cash flows at August 31, 1998, and for all periods presented, have been made. (3) Stock Dividend During May 1998 the Company effected a one for one stock dividend/two for one stock split. All references to common stock in the financial statements have been retroactively adjusted. (4) Acquisition Agreement Effective March 3, 1998, the Company entered into a securities acquisition agreement pursuant to which the Company issued 220,000 pre-dividend common shares or approximately 19% of its common shares and 1,000,000 shares of a new class of nonvoting preferred shares, $3.00 par value per share, in exchange for stock held by exchanging parties in an interactive advertising and marketing corporation (the Zulu-tek transaction). The preferred shares of the Company are convertible into common shares at the Company's option only after shareholder approval at a meeting called for that purpose and have a liquidation preference which is junior to the previously issued preferred shares of the Company. In connection with the transaction, the holder of the Company's $500,000 accounts receivable collateralized loan agreed, subject to the consent of the loan participants, to convert the loan into equity. 8 (5) Subsequent Acquisition Agreement Effective September 16, 1998, the Company entered into an acquisition agreement to acquire the assets and certain liabilities of Zulu-tek, Inc., in exchange for convertible preferred stock. The convertible preferred stock will, if approved by the shareholders at the shareholder meeting currently set for November 20, 1998, convert into 5,200,00 shares of common stock. (6) Consulting Agreement On April 1, 1998 the Company entered into an agreement with Kennedy Miles Creative Communication, LTD, (KMCC). Pursuant to the agreement, KMCC shall provide consulting services to the Company for a term of one year. As consideration for services rendered by KMCC, the Company issued common stock purchase warrants exercisable to purchase, in the aggregate 75,000 pre-dividend shares at $2.00 per share. During the second quarter of 1998, 75,000 pre-dividend warrants were exercised and the difference between the exercise price of the warrants and the market value of the shares amounting to $150,000 was expensed. On March 15, 1998 the Company entered into an agreement with Richard A. Fisher (RAF). Pursuant to the agreement, RAF shall provide consulting services to the Company for a term of one year. AS consideration for services rendered by RAF, the Company issued common stock purchase warrants exercisable to purchase, in the aggregate 50,000 pre-dividend shares at $4.00 per share. During the second quarter of 1998, 50,000 pre-dividend warrants were exercised. (7) Working Capital Note/Equity The Company executed a $3,000,000 subordinated working capital note with Netvest Capital Partners, LP. The note proceeds may fund operations of the Company and the business combination. Funds advanced under the note to the Company at August 31, 1998 were $2,266,249. Netvest Capital Partners, LP, subsequent to August 31, 1998, has agreed to convert the working capital note to equity. (8) Advances to Zulu-Media The Company entered into a working capital agreement with Zulu-Media whereby the Company will provide working capital. The agreement provides for repayment upon demand by the Company. 9 Item 2. Management's Discussion and Analysis of Financial Conditions and results of Operations Overview Enhanced Services Company, Inc. (the "Company") historically, through it's Laptop Solutions -Texas and California subsidiaries, provided certain services to the portable computing community. The Company, in a move to consolidate and eliminate duplicate facilities moved all it's operations to Irvine, California. Because of the consolidation of Laptop Solutions -Texas and California, the following discussion has been combined into one presentation and will not be entirely comparable. The Company plans to concentrate more of its efforts in the custom engineering products and services. The Company, until May 1998, offered digital video compression and DVD-Video services through it's NB Digital Solutions subsidiary in Crofton, Maryland. NB Digital sustained substantial losses since it's acquisition in 1995 and in view of the investment required to continue its' operation and the uncertainty of achieving profitability, the Company ceased NB Digital operations in May, 1998 and the operating results are reflected as "Discontinued" in the following discussions. The Company's second fiscal quarter ended August 31, 1998 and the nine-month comparable period of 1997 are referred to in the discussions below as 1998 and 1997, respectively. COMBINED OPERATIONS OF LAPTOP SOLUTIONS -- CALIFORNIA & TEXAS Laptop Solutions - Results of operations for nine month period ended August 31, 1998 and 1997 are summarized and discussed below: The discontinued operation of NB Digital Solutions, Inc. has been presented as other expense titled "Discontinued operations" Change 1998 1997 % ---- ---- ------ Sales $ 2,369,305 $ 3,598,980 (34)% Cost of sales exclusive of depreciation and salaries) 1,009,944 1,833,976 (45)% ----------- ----------- Gross Profit 1,359,361 1,765,004 (23)% Operating & Other Expenses 3,116,830 2,389,489 30 % ----------- ----------- Net Operating Income (Loss) (1,757,469) (624,485) (181)% Other Income 2,004 96,717 (97)% ----------- ----------- Net Income (Loss) $(1,168,288) $ (680,991) (72)% ----------- ----------- Discontinued Operation $(1,433,651) $ (611,338) (134)% Net Loss $(3,189,116) $ (419,998) (659)% =========== =========== 10 SALES: Revenue from upgrade and enhancement sales decreased $772,831 from $1,394,867 in 1997 to $622,036 in 1998, a decrease of 55%, while the per unit revenue and volume continue to decline as a result of competitive pressure and technological change. Revenue from Compatibility Plus(TM) sales, the removable hard disk pak, decreased $205,780 to $71,790 in 1998, from $277,570 in 1997 as demand for the pak continues to decline. Revenues from repair and contract maintenance services decreased from $683,296 in 1997 to $496,655 in 1998 from $1,179,951 in 1997, a decrease of 57%. Management believes the decrease is a result of certain manufacturers extending the warranty period to three years from one year and reducing the warranty reimbursement to the service provider. Also, certain manufacturers have begun to compete with its service provider for the repair business by opening depot repair facilities. Revenues from engineered products that began shipping in the first quarter of 1998 amounted to $685.357. Demand for the product, a wireless modem that was custom designed with Panasonic Personal Computer Company is expected to remain strong through the third and fourth quarter of 1998. Revenue from CVAR 2000(TM) decreased $132,250 in 1998 to $494,467 from $625,717 in 1997 as demand for the anti-reflective film application declined. COST OF SALES: Cost of sales of upgrade, enhancements, declined $398,090 in 1998 from $733,153 in 1997, a 54% decrease that was primarily the result of declining demand. Cost of sales for the removable hard disk pak declined $121,794 to $38,074 in 1998 from $159,868 in 1997, a decline of 76% as the hard disk pak sales decline. Cost of sales of repair and contract services decreased $348,773 in 1998 to $159,113 from $507,886, a decrease of 69% as a result of declining demand and competition. Cost of sales of CVAR 2000 decreased $160,586 from $346,765 in 1997 to $186,179 in 1998 as a result of declining sales. All other direct cost of sales, primarily freight expense, decreased $132,996 to $42,007 in 1998 from $175,003 in 1997, primarily as a result of the decline in the volume of shipments. OPERATING AND OTHER EXPENSES: Salaries and related payroll cost in 1998 amounted to $839,617 as compared to $1,118,022 in 1997, a decrease of 26%. The decrease in personnel and related cost was primarily due to consolidating the Houston and New Jersey facility to Irvine California. Insurance cost in 1998 amounted to $86,552 as compared to $101,807 in 1997, a decrease of 15%. The decrease was primarily the result of the facility consolidation. Advertising costs declined $154,439 from $176,719 in 1997 to $22,280 in 1998, a decrease of 87%, due to cancellation of ineffective advertising. Computer expense decreased $48,761 in 1998 to $39,945 from $88,706 in 1997 as a result of increasing the computer network capacity and capabilities in 1997. Laptop Solutions-Texas was charged rent for its office and warehouse space by the Company of $131,003 for 1997 when the Company owned the building. The building was sold in August 1997 and Laptop leased its existing space from the purchasers of the building for the then market rate of $203,992, an increase of $72,989. The cost of the Houston lease continued through August 1998. Also, the California facility size was increased to accommodate the production of engineered products and CVAR 2000, resulting in additional rent of $49,738 in 1998 to $113,516 from $63,778 in 1997. Professional fees increased $61,952 to $114,115 in 1998 from $52,163 in 1997, primarily as a result of increased legal and auditing cost. Consulting fees in the amount of $150,000 in connection with the exercise of warrant, were expensed in 1998. DISCONTINUED OPERATIONS: NB Digital Solutions operations were discontinued in May 1998. Sales declined $628,510 in 1998 to $305,921 from $934,431 in 1997 and gross profit from such sales declined $604,227 to $202,534 for the period. Operating expenses amounted to $635,383 in 1998, a decrease of $628,213 from $1,263,598 in 1997. Goodwill in the amount of $657,688 and loss on disposition of assets amounted to $143,112. Cost of discontinuing the operation has been estimated to be $200,000 and such amount has been reserved for that purpose. 11 LIQUIDITY AND CAPITAL RESOURCES At August 31, 1998, the Company had stockholders' equity totaling $3,177,483, as compared to $1,496,050 at November 30, 1997, an increase of $1,681,433. The increase of $1,1681,433 resulted from additional capital, offset by operation losses. The capital included the issuance of 220,000 pre-dividend common shares at the then market price of $4.75, and issuance of 1,000,000 shares of preferred stock, stated value of $3.00 per share for an aggregate of $4,045,000. In addition, during the quarter: 75,000 pre-dividend common stock purchase warrants at $2.00 per share were exercised pursuant to a consulting agreement with Kennedy Miles and Associates resulting in gross proceeds of $300,000 before a discount of $150,000 charged to current operations; a 50,000 pre-dividend common stock purchase warrants at $4.00 per share were exercised pursuant to a consulting agreement with Richard A. Fisher resulting in net proceeds of $200,000; Creative Business Strategies exercised 7,500 pre-dividend common stock purchase warrants at $2.00 per share and 85,000 post-dividend common stock purchase warrants at prices from $1.00 to $2.00 per share with net proceeds of $138,875. Wall Street Financial exercised 8,500 pre-dividend common stock purchase warrants at $3.00 per share and 83,000 post-dividend common stock purchase warrants at prices of $1.50 to $2.00 per share resulting in net proceeds of $175,000; and, shares were issued pursuant to the 1992 Stock Option Plan resulting in proceeds of $29,389. The loss for the nine-month period ended August 31, 1998 amounted to $3,189,116. The Company's working capital was ($144,331) as compared to $337,799 on November 30, 1997, a decrease of $481,130. The decrease was primarily the result of a $879,063 increase in receivables and a $444,439 reduction in cash and an increase of $849,805 in accounts payable and short-term notes. The Company sought up to $50,000,000 in private placement and equity during the second and third quarters but the financing was not successful, primarily because the market did not respond to a placement premised on a combined business plan by two separate entities. Consequently, as a result of the incomplete financing and the advances to Zulu-tek, as well as costs of consolidating the Laptop facilities, during the third quarter, the Company has deferred certain payables, pending proceeds of additional funding being pursued by the Company. On September 18, 1998, the Company entered into a letter of intent for a private placement of up to $20,000,00 in preferred equity, of which $1,050,000 was funded on October 13, 1998. The balance is expected to be funded by the end of the Company's fiscal year on November 30, 1998, and will be applied, along with operating funds to the Company's operating obligations and to implement the combined business plan and other capital needs. In that connection, effective September 14, 1998, the Company announced the acquisition of the assets and certain liabilities of Zulu-tek, Inc. in exchange for preferred stock to be converted to 5,200,000 shares of common stock, after shareholder approval at a shareholder meeting currently set for November 20, 1998. The Company has historically relied on cash from equity and debt funding and the exercise of options and warrants to supplement its operating funds. Management believes that revenue generated from operations, along with funds generated by financing activities including the proceeds from the current private placement of equity and debt securities will be sufficient to meet Company needs and to support the business and strategic plan being undertaken by the Company for at least the next 12 months. However, there can be no assurance that anticipated operating results will be achieved or that the current private placement of funds will be completed on favorable terms and at the levels required. If the current fundings are not completed or are completed at levels or on terms which do not provide sufficient funding on acceptable terms, management will be required to modify Company strategy.