UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 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) August 8, 2003
NaviSite, Inc.
(Exact name of registrant as specified in its charter)
Delaware 52-2137343
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
000-27597
(Commission File Number)
400 Minuteman Road
Andover, Massachusetts
01810
(Address of principal executive offices)
(zip code)
(978) 682-8300 Phone
(Registrant's telephone number, including area code)
On August 22, 2003, NaviSite, Inc. (the "Registrant" or "NaviSite") filed a
report on Form 8-K with respect to the acquisition of certain assets and the
assumption of certain liabilities of ClearBlue Technologies, Inc., a Delaware
corporation ("CLEARBLUE" or "CBT") pursuant to a Stock and Asset Acquisition
Agreement, dated as of August 8, 2003. At that time it was impracticable to
provide the financial statements and pro forma information required to be filed
therewith relative to the acquired assets and assumed liabilities, and the
Registrant stated in such Form 8-K that it intended to file the required
financial statements and pro forma financial information as soon as practicable,
but no later than October 22, 2003. By this amendment to such Form 8-K, the
Registrant is amending and restating Item 7 thereof to include the required
financial statements and pro forma financial information.
Item 5. Other Events.
Information about ClearBlue
Nature of the Business
ClearBlue deploys and manages large-scale facilities for the co-location
and hosting of mission critical services to support Internet, telecommunications
and data markets. ClearBlue offers a comprehensive range of infrastructure
solutions and services such as Web hosting, data storage, load balancing and
firewalls.
Principal Source of Revenue and Types of Operating Expenses
ClearBlue's revenue consists of monthly recurring fees from Internet data
center services, which include monthly storage, power service, cross-connection
and related installation services. See Item 7 of this Report for detailed
information about ClearBlue's sources of revenue and operating expenses.
Operating expenses consist of:
o Cost of service, which includes labor and related costs, facilities
rental, power, telecommunications and depreciation
o General and administrative which includes labor and related costs and all
other administrative expenses
o Sales and marketing which includes labor and related costs and commission
expense.
Material Fluctuations in Revenue, Expenses and Margins
ClearBlue's revenue declined from fiscal year ending July 31, 2002 to
fiscal year ending July 31, 2003 due to the deteriorating economic conditions
experienced by technology and telecom companies, which comprise a large portion
of CBT's customer base. Due to the large percentage of fixed cost (compared to
total cost), there were no material fluctuations in expenses year-to-year.
Because of the forgoing, gross margin was negatively impacted in 2003 as
compared to 2002.
Material Contractual Provisions with Customers
Material provisions of ClearBlue's contracts provide:
o Term of 12 to 24 months
o Automatic renewal upon expiration of initial term
o Non-cancellation--other than for breach
o Service level guarantees
o Limitation of liability
o Monthly recurring fees
Key Metrics
ClearBlue's key metrics for its co-location business are 1) data center
utilization, which measures the actual space generating revenue, within a data
center as compared to overall available space, 2) gross margin, which measures
the contribution that customers make toward the profitability of the data center
and 3) customer churn, which measures lost customer revenue during a period.
Item 7. Financial Statements and Pro Forma Financial Information
and Exhibits.
On August 8, 2003, NaviSite completed the acquisition of certain assets and the
assumption of certain liabilities of ClearBlue Technologies, Inc. (ClearBlue),
pursuant to a Stock and Asset Acquisition Agreement, dated as of August 8, 2003
(the Agreement).
Pursuant to the Agreement, ClearBlue sold to NaviSite all outstanding shares of
each of the following wholly-owned subsidiaries of ClearBlue:
ClearBlue Technologies/Chicago-Wells, Inc.;
ClearBlue Technologies/Las Vegas, Inc.;
ClearBlue Technologies/Los Angeles, Inc.;
ClearBlue Technologies/Milwaukee, Inc.;
ClearBlue Technologies/Oakbrook, Inc.; and
ClearBlue Technologies/Vienna, Inc.
In addition, NaviSite assumed the revenue and expense, as of the date of the
Agreement, of the following wholly-owned subsidiaries of ClearBlue, ownership of
which will automatically be transferred under certain conditions to NaviSite for
no additional consideration in February 2004:
ClearBlue Technologies/Dallas, Inc.;
ClearBlue Technologies/New York, Inc.;
ClearBlue Technologies/San Francisco, Inc.; and
ClearBlue Technologies/Santa Clara, Inc.
The ten ClearBlue subsidiaries referred to above are hereafter referred to as
the Carve-Out Businesses of ClearBlue Technologies, Inc. or the Carve-Out
Businesses. The four wholly-owned subsidiaries of ClearBlue, ownership of which
will automatically be transferred under certain conditions to NaviSite for no
additional consideration in February 2004 have been included in the audited
historical combined financial statements of the Carve-Out Businesses and the
unaudited pro forma condensed consolidated financial statements of NaviSite
since NaviSite exercises effective control over these subsidiaries as of
August 8, 2003.
On May 16, 2003, NaviSite completed the acquisition of substantially all of the
assets relating to the managed infrastructure solutions business, encompassing
messaging and collaboration, managed hosting, bundled-in managed security, and
integrated and related professional services in the United States and in Europe,
of Interliant, Inc., a Delaware corporation, and several of its subsidiaries
(the Debtors) in the bankruptcy proceedings of the Debtors under Chapter 11 of
the United States Bankruptcy Code pending in the Southern District of New York
(White Plains), pursuant to an Asset Purchase Agreement, dated as of May 15,
2003 (the Agreement), by and between its subsidiary, Intrepid Acquisition Corp.
(Intrepid) and the Debtors, approved by order of the Bankruptcy Court on
May 15, 2003. Pursuant to the Agreement, the aggregate purchase price for the
Interliant Assets was approximately $7,204,000 after adjustments, based upon
the Debtors' adjusted net
worth, comprised of approximately $5,830,000 in cash, $624,000 in the form of a
credit of future distributions to be paid on the Interliant Notes, $550,000 in
principal amount of a non-interest bearing, 180-day promissory note, secured by
the Interliant Debt and approximately $200,000 in acquisition-related costs. On
May 16, 2003, our subsidiary closed on the purchase of all of the Interliant
assets, other than the Debtors' accounts receivable. On June 6, 2003, our
subsidiary closed on the purchase of the accounts receivable. The source of the
funds used for the initial closing was our cash on hand combined with the funds
provided from and through financing of our accounts receivable with Silicon
Valley Bank. Interliant's results of operations and cash flows for the
two-and-one-half months ended July 31, 2003 are included in NaviSite's
consolidated statement of operations and consolidated statement of cash flows
for the year ended July 31, 2003. Intrepid is operated as a wholly-owned
subsidiary of NaviSite.
On April 2, 2003, NaviSite acquired all of the outstanding stock of Conxion
Corporation and Subsidiaries (Conxion) in exchange for $1.925 million in cash.
Conxion's results of operations and cash flows for the four months-ended July
31, 2003 are included in NaviSite's consolidated statement of operations and
consolidated statement of cash flows for the year ended July 31, 2003. Conxion
is operated as a wholly-owned subsidiary of NaviSite.
On December 31, 2002, NaviSite acquired all of the outstanding stock of
ClearBlue Technologies Management, Inc. (CBTM) in exchange for 567,978 shares of
NaviSite common stock, representing 4.5% of NaviSite's total outstanding stock,
inclusive of the common stock issued as part of the acquisition. The market
price of the NaviSite stock at the time of the transaction was $2.25 per share.
Immediately prior to its sale to NaviSite, CBTM was a wholly owned subsidiary of
ClearBlue, NaviSite's parent company. As ClearBlue had a controlling interest in
both companies at the time of the combination, the transaction was accounted for
as a combination of entities under common control, similar to a
pooling-of-interests, whereby the assets and liabilities of CBTM and NaviSite
were combined at their historical amounts as of the date ClearBlue had control
of both entities, September 11, 2002. CBTM's results of operations and cash
flows for the eleven-months ended July 31, 2003 are included in NaviSite's
consolidated statements of operations and consolidated statements of cash flows
for the year ended July 31, 2003. CBTM is operated as a wholly-owned subsidiary
of NaviSite.
The unaudited pro forma condensed consolidated balance sheet of NaviSite as
of July 31, 2003 gives pro forma effect to the acquisition of the Carve-Out
Businesses as if it had occurred as of July 31, 2003. The unaudited pro
forma condensed consolidated statement of operations of NaviSite for the year
ended July 31, 2003 gives pro forma effect to the acquisition of the Carve-Out
Businesses, Intrepid, Conxion and CBTM as if they had occurred as of
August 1, 2002.
The results of operations of NaviSite for the fiscal year ended July 31, 2003
have been combined with the results of operations of the Carve-Out Businesses
for the twelve-months ended July 31, 2003; Intrepid for the nine-and-one-half
months ended May 15, 2003; Conxion for the eight-months ended March 31, 2003;
and CBTM for the one-month ended August 31, 2002.
The unaudited pro forma financial information is not necessarily indicative of
the results of operations or financial position of NaviSite had the transactions
assumed therein occurred, nor are they necessarily indicative of the results of
operations which may be expected to occur in the future. Furthermore, the
unaudited pro forma financial information is based on assumptions that NaviSite
believes are reasonable and should be read in conjunction with NaviSite's Form
10-K previously filed.
The following combined financial statements and pro forma consolidated financial
information are filed as exhibits to this report:
A. Combined Financial Statements for the Carve-Out Businesses of ClearBlue
Technologies, Inc. as of July 31, 2003 and 2002 and for the year ended July 31,
2003 and for the ten-months ended July 31, 2002 (audited). ClearBlue operated
each of its co-location sites as wholly-owned subsidiaries. The ten co-location
sites, representing the assets acquired and liabilities assumed on August 8,
2003 under that Asset and Stock Purchase Agreement, have been combined for
financial reporting purposes in this filing.
B. Pro forma Consolidated Condensed Balance Sheet of NaviSite, Inc. as of July
31, 2003 and Condensed Consolidated Statement of Operations for the year ended
July 31, 2003 (unaudited).
C. Exhibits:
Exhibit No. Description
----------- -----------
23.1 Consent of KPMG LLP.
99.1 Combined financial statements for the Carve-out Businesses
of ClearBlue Technologies, Inc. as of July 31, 2002
(audited) and July 31, 2003 (audited) (see index to
financial statements) and pro forma condensed consolidated
balance sheet as of July 31, 2003 and condensed consolidated
statement of operations of NaviSite for the year-ended July
31, 2003 (unaudited).
SIGNATURES
Pursuant to the requirements of Section 13 of the Securities Exchange Act
of 1934, the Registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
NAVISITE, INC.
Date: October 22, 2003 By: /s/ James W. Pluntze
------------------------------
James W. Pluntze
Chief Financial Officer
TABLE OF CONTENTS
Page
Independent Auditors' Report 1
Combined Balance Sheets as of July 31, 2003 and July 31, 2002
(audited) 2
Combined Statements of Operations for the year ended July 31,
2003 and for the ten months-ended July 31, 2002 (audited) 3
Combined Statements of Stockholder's Equity for the year
ended July 31, 2003 and the ten-months ended July 31, 2002 (audited) 4
Combined Statements of Cash Flows for the year ended July 31,
2003 and the ten-months ended July 31, 2002 (audited) 5
Notes to Combined Financial Statements 6 - 16
INDEPENDENT AUDITORS' REPORT
The Board of Directors
NaviSite, Inc.
We have audited the accompanying combined balance sheets of the Carve-out
Businesses of ClearBlue Technologies, Inc. as of July 31, 2003 and 2002, and the
related combined statements of operations, stockholders' equity, and cash flows
for the year ended July 31, 2003 and ten months ended July 31, 2002. These
combined financial statements are the responsibility of the Carve-out
Businesses' management. Our responsibility is to express an opinion on these
combined financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
The accompanying combined financial statements were prepared for the purposes of
complying with the rules and regulations of the Securities and Exchange
Commission (for inclusion in the Current Report on Form 8/K-A of NaviSite, Inc.
as described in note 1).
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the combined financial position of the
Carve-out Businesses of ClearBlue Technologies, Inc. as of July 31, 2003 and
2002, and the combined results of its operations and its cash flows for the year
ended July 31, 2003 and ten months ended July 31, 2002, in conformity with
accounting principles generally accepted in the United States of America.
/s/ KPMG LLP
Boston, Massachusetts
October 21, 2003
CARVE-OUT BUSINESSES OF CLEARBLUE TECHNOLOGIES, INC.
Combined Balance Sheets
July 31, 2003 and 2002
ASSETS 2003 2002
----------- ----------
Current assets:
Cash and cash equivalents $ -- $ 539,021
Accounts receivable, net of allowance for
doubtful accounts 1,688,007 532,980
of $1,015,077 and $272,304
Intercompany receivable 2,792,111 2,973,333
Prepaid expenses and other current assets 103,529 142,059
Current portion of note receivable 900,000 900,000
----------- -----------
Total current assets 5,483,647 5,087,393
Property and equipment, net 5,873,452 8,062,010
Restricted cash 2,496,826 2,430,444
Note receivable 675,000 1,575,000
Intangible assets, net 2,349,807 5,060,503
Other assets 480,159 857,585
----------- -----------
$17,358,891 23,072,935
=========== ===========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Accounts payable $ 519,596 $ 1,231,560
Accrued liabilities 1,774,828 1,295,495
Deferred and prepaid revenue 1,478,945 1,917,296
Current portion of capital lease obligation 344,259 764,567
----------- -----------
Total current liabilities 4,117,628 5,208,918
Deferred revenue 675,000 1,575,000
Long-term portion of capital lease obligation -- 425,169
Deferred rent 1,519,177 593,817
----------- -----------
Total liabilities 6,311,805 7,802,904
----------- ----------
Commitments
Stockholder's equity:
Common stock, at stated value 10,000 10,000
Additional paid-in capital 16,654,395 16,654,395
Accumulated deficit (5,617,309) (1,394,364)
----------- -----------
Total stockholder's equity 11,047,086 15,270,031
----------- -----------
Total liabilities and
stockholder's equity $17,358,891 $23,072,935
=========== ===========
See accompanying notes to combined financial statements.
CARVE-OUT BUSINESSES OF CLEARBLUE TECHNOLOGIES, INC.
Combined Statements of Operations
Year ended July 31, 2003 and ten months ended July 31, 2002
2003 2002
----------- -----------
Service revenue $15,353,178 $14,498,915
Cost of service revenue 15,503,083 13,278,078
----------- -----------
Gross profit (loss) (149,905) 1,220,837
Operating expenses:
General and administrative 1,841,034 2,116,928
Sales and marketing 52,203 107,501
Impairment expense 1,979,261 --
----------- -----------
Total operating expenses 3,872,498 2,224,429
----------- -----------
Operating loss (4,022,403) (1,003,592)
Other income (expense):
Interest income 66,383 56,829
Interest expense (114,228) (225,942)
----------- -----------
Other expenses, net (47,845) (169,113)
Loss before income taxes (4,070,248) (1,172,705)
Provision for income taxes 152,697 221,659
----------- -----------
Net loss $(4,222,945) $(1,394,364)
=========== ===========
See accompanying notes to combined financial statements.
CARVE-OUT BUSINESSES OF CLEARBLUE TECHNOLOGIES, INC.
Combined Statements of Stockholder's Equity
Year ended July 31, 2003 and ten months ended July 31, 2002
COMMON STOCK ADDITIONAL TOTAL
-------------------- PAID-IN ACCUMULATED STOCKHOLDERS'
SHARES AMOUNT CAPITAL DEFICIT EQUITY
--------- ------- ---------- ----------- -------------
Balances at September 20, 2001 1,000,000 $10,000 $16,654,395 $ -- $16,664,395
Net loss -- -- -- (1,394,364) (1,394,364)
--------- ------- ---------- ---------- ----------
Balances at July 31, 2002 1,000,000 10,000 16,654,395 (1,394,364) 15,270,031
Net loss -- -- -- (4,222,945) (4,222,945)
--------- ------- ---------- ---------- ----------
Balances at July 31, 2003 1,000,000 $10,000 $16,654,395 $(5,617,309) $11,047,086
========= ======= ========== ========== ==========
See accompanying notes to combined financial statements.
CARVE-OUT BUSINESSES OF CLEARBLUE TECHNOLOGIES, INC.
Combined Statements of Cash Flows
Year ended July 31, 2003 and ten months ended July 31, 2002
2003 2002
----------- -----------
Cash flows from operating activities:
Net loss $(4,222,945) $(1,394,364)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Depreciation and amortization 2,992,286 3,160,829
Impairment charge 1,979,261 --
Changes in assets and liabilities:
(Increase) decrease in assets:
Accounts receivable (1,155,027) (532,980)
Prepaid expenses and other current assets (69,704) (33,825)
Deposits and other receivables 900,000 (1,891,675)
Increase (decrease) in liabilities:
Accounts payable (711,964) 1,231,559
Accrued liabilities 964,993 809,835
Deferred revenue (1,338,351) 3,492,297
Deferred rent 925,360 593,817
----------- -----------
Net cash provided by operating activities 263,909 5,435,493
Net cash flow from investing activities:
Purchase of property and equipment (72,293) (2,192,774)
----------- -----------
Net cash used in investing activities (72,293) (2,192,774)
Net cash flow from financing activities:
(Increase) decrease in due from affiliates 181,222 (2,936,605)
Increase in restricted cash (66,382) (56,829)
Increase in note receivable -- (900,000)
Principal payments on capital lease obligations (845,477) --
Borrowings under capital lease obligations -- 1,189,736
----------- -----------
Net cash used in financing activities (730,637) (2,703,698)
----------- -----------
Net (decrease) increase in cash and cash equivalents (539,021) 539,021
Cash and cash equivalents, beginning of period 539,021 --
----------- -----------
Cash and cash equivalents, end of period $ -- 539,021
=========== ===========
See accompanying notes to combined financial statements.
CARVE-OUT BUSINESSES OF CLEARBLUE TECHNOLOGIES, INC.
Notes to Combined Financial Statements
July 31, 2003 and 2002
(1) ORGANIZATION AND BASIS OF PRESENTATION
ClearBlue Technologies, Inc. (ClearBlue) (formerly BJK Investments, Inc.)
and its wholly-owned subsidiaries operate as a carrier-neutral collocation
company. Operating across the United States of America, ClearBlue deploys
and manages large-scale facilities for the collocation and hosting of
mission-critical services to support Internet, telecommunications, and data
markets. ClearBlue offers a comprehensive range of infrastructure solutions
and services such as Web hosting, data storage, load balancing, and
firewalls.
On September 20, 2001, ClearBlue purchased substantially all of the assets,
including customer agreements, and assumed certain liabilities of Colo.com
in the bankruptcy proceedings of Colo.com under Chapter 11 of the United
States Bankruptcy Code.
The accompanying combined financial statements, which have been prepared as
if the Carve-out Businesses had operated as a separate stand-alone entity
for the periods presented, except as disclosed in the following paragraph,
are designed to generally reflect on a carve-out basis the financial
position and results of operations of certain wholly-owned subsidiaries
(described below) of the Carve-Out Businesses and have been prepared for the
purpose of complying with the rules and regulations of the Securities and
Exchange Commission.
The combined financial statements of the Carve-out Businesses have been
prepared in conformity with accounting principles generally accepted in the
United States of America, on the basis of ClearBlue's historical cost of the
assets and liabilities associated with its carrier-neutral collocation
business. On January 1, 2003, ClearBlue entered into an Outsourcing
Agreement with NaviSite whereby NaviSite provides certain management
services as well as manages the day-to-day operations of ClearBlue's data
centers. See note 10. Prior to January 1, 2003, ClearBlue historically
operated other wholly-owned subsidiaries and provided certain services to
all of its various subsidiaries on a centralized basis. The costs of these
services have been allocated among the wholly-owned subsidiaries, based on
the Carve-Out Businesses' share of expenses for centralized services.
Management believes that the allocation methods used are reasonable;
however, such allocated amounts may or may not be indicative of management
fees that would have been incurred had the Carve-Out Businesses operated
independently of ClearBlue. However, management does not believe it is
practicable to determine what the costs of these services would have been
had the wholly-owned subsidiaries acquired by ClearBlue operated as an
independent entity during the historical periods and either performed such
services internally or obtained them from an unaffiliated entity.
The following affiliated entities (collectively referred to as the Carve-out
Businesses), which are owned by ClearBlue, are included in these combined
financial statements:
ClearBlue Technologies/Chicago-Wells, Inc.
CARVE-OUT BUSINESSES OF CLEARBLUE TECHNOLOGIES, INC.
Notes to Combined Financial Statements
July 31, 2003 and 2002
ClearBlue Technologies/Las Vegas, Inc.
ClearBlue Technologies/Los Angeles, Inc.
ClearBlue Technologies/Milwaukee, Inc.
ClearBlue Technologies/Oakbrook, Inc.
ClearBlue Technologies/Vienna, Inc.
ClearBlue Technologies/Dallas, Inc.
ClearBlue Technologies/New York, Inc.
ClearBlue Technologies/San Francisco, Inc.
ClearBlue Technologies/Santa Clara, Inc.
All significant intercompany accounts and transactions have been eliminated
in combination.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) CASH AND CASH EQUIVALENTS AND RESTRICTED CASH EQUIVALENTS
Cash and cash equivalents consisted of highly liquid investments with
maturities at purchase of three months or less. As of July 31, 2003 and
2002, restricted cash equivalents consisted of certificates of deposit at
one major financial institution and are recorded at cost, which approximates
fair value. Certain cash is restricted pursuant to terms of lease agreements
with landlords.
(b) ACCOUNTS RECEIVABLE
Bad debts are provided on the allowance method based on historical
experience and management evaluation of outstanding accounts receivable.
(c) PROPERTY AND EQUIPMENT
Property and equipment are stated at cost and are depreciated on a
straight-line basis over the estimated useful lives of the assets, which
range from three to seven years.
Property and equipment under capital leases are stated at the lower of the
present value of the minimum lease payments at the beginning of the lease
term or the fair value at the inception of the lease. Amortization expense
is recorded over the life of the related asset or lease term, if shorter.
Leasehold improvements are amortized on a straight-line basis over the
lesser of the useful lives or the term of the lease.
Repairs and maintenance are charged to expense as incurred, and costs of
significant renewals and improvements are capitalized. The cost of assets
sold or retired and the related accumulated depreciation or amortization are
removed from the accounts; any resulting gain or loss is included in
operations.
CARVE-OUT BUSINESSES OF CLEARBLUE TECHNOLOGIES, INC.
Notes to Combined Financial Statements
July 31, 2003 and 2002
(d) INTANGIBLE ASSETS
Intangible assets comprise amounts recorded in the business acquisition of
Colo.com (see notes 4 and 7). The sum of the amounts assigned to assets
acquired and liabilities assumed exceeded the cost of the acquired entity.
That excess has been allocated as a pro rata reduction to certain noncurrent
and intangible assets on the accompanying combined balance sheets. The
intangible assets are being amortized on a straight-line basis over periods
ranging from three to ten years.
(e) IMPAIRMENT OF LONG-LIVED ASSETS AND LONG-LIVED ASSETS TO BE DISPOSED OF
The Carve-out Businesses evaluate their long-lived assets and certain
identifiable intangibles for impairment whenever events or changes in
circumstances indicate that the carrying amount of such assets or
intangibles may not be recoverable. Recoverability of assets to be held and
used is measured by a comparison of the carrying amount of an asset to
future undiscounted net cash flows expected to be generated by the asset. If
such assets are considered to be impaired, the impairment to be recognized
is measured by the amount by which the carrying amount of the assets exceeds
the fair value of the assets. If an asset is to be disposed of, it is
reported at the lower of the carrying amount or fair value less costs to
sell.
(f) INCOME TAXES
The Carve-out Businesses' operating results historically have been included
in ClearBlue's consolidated U.S. and state income tax returns. The provision
for income taxes in the Carve-out Businesses' combined financial statements
has been determined using the separate company return method.
The Carve-out Businesses use the asset and liability method of accounting
for income taxes. Under this method, deferred tax assets and liabilities are
recognized for the future tax consequences attributable to the differences
between the financial statement and tax bases of assets and liabilities and
operating loss and tax credit carryforwards using enacted tax rates expected
to apply to the year in which the differences are expected to affect taxable
income. The effect on deferred tax assets and liabilities of a change in tax
rate is recognized in operations in the period that includes the enactment
date. Valuation allowances are established when necessary to reduce deferred
tax assets to the amounts expected to be recovered.
(g) REVENUE RECOGNITION
The Carve-out Businesses' revenues consist of monthly fees from Internet
data center (IDC) services, which include monthly storage, power service,
cross-connection, and related installation services.
The Carve-out Businesses recognize revenue when all of the following
criteria are met: persuasive evidence of an arrangement exists; delivery of
the services or goods has occurred; the fee is fixed or determinable; and
collectibility is reasonably assured. If collectibility is not considered
reasonably assured, revenue is recognized when the fee is collected.
Advance payments received from customers in connection with IDC services are
recorded as deferred revenue. Monthly services are considered to be
performed ratably over the term of the arrangement.
(h) DEFERRED REVENUE
Deferred revenue results from advance payments by customers, last month's
rent based on signed rental contracts, and payment in full for installation
fees.
CARVE-OUT BUSINESSES OF CLEARBLUE TECHNOLOGIES, INC.
Notes to Combined Financial Statements
July 31, 2003 and 2002
The installation fees are amortized on a straight-line basis over the life
of the customer agreement. The advance payments and last month's rent are
recognized in the period earned.
A customer's fee is either fixed or determinable under the terms of the
written contract prior to recognizing revenue. Fees for most monthly service
and rentals are fixed under the terms of the written contract. The
customer's fee is negotiated at the outset of the arrangement and is
generally not subject to refund or subject to adjustment during the initial
term of the arrangement.
(i) USE OF ESTIMATES
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts
of revenues and expenses during the reporting period. Actual results could
differ from those estimates.
(j) IMPACT OF RECENT ACCOUNTING PRONOUNCEMENTS
In July 2001, the FASB issued SFAS No. 141, Business Combinations, and SFAS
No. 142, Goodwill and Other Intangible Assets. SFAS No. 141 requires that
the purchase method of accounting be used for all business combinations
initiated after June 30, 2001 as well as all purchase method business
combinations completed after June 30, 2001. SFAS No. 141 also specifies
criteria that intangible assets acquired in a purchase method business
combination must meet to be recognized and reported apart from goodwill,
noting that any purchase price allocable to an assembled workforce may not
be accounted for separately. SFAS No. 142 requires that goodwill and
intangible assets with indefinite useful lives no longer be amortized, but
instead tested for impairment at least annually in accordance with the
provisions of SFAS No. 142. SFAS No. 142 also requires that intangible
assets with estimable useful lives be amortized over their respective
estimated useful lives to their estimated residual values, and reviewed for
impairment in accordance with SFAS No. 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of. The Carve-out
Businesses adopted SFAS No. 141 upon issuance and adopted SFAS No. 142 on
January 1, 2002. The Carve-out Businesses accounted for its acquisition of
Colo.com in September 2001 in accordance with SFAS 141. See note 4. The
adoption of
CARVE-OUT BUSINESSES OF CLEARBLUE TECHNOLOGIES, INC.
Notes to Combined Financial Statements
July 31, 2003 and 2002
SFAS No. 142 did not affect the Carve-out Businesses' combined financial
statements.
In October 2001, the FASB issued SFAS No. 144, Accounting for the Impairment
or Disposal of Long-Lived Assets, which addresses financial accounting and
reporting for the impairment or disposal of long-lived assets. While SFAS
No. 144 supersedes SFAS No. 121, it retains many of the fundamental
provisions of SFAS No. 121. SFAS No. 144 also supersedes the accounting and
reporting provisions of APB Opinion No. 30, Reporting the Results of
Operations - Reporting the Effects of Disposal of a Segment of a Business,
and Extraordinary, Unusual and Infrequently Occurring Events and
Transactions, for the disposal of a segment of a business. However, it
retains the requirement in APB Opinion No. 30 to report separately
discontinued operations and extends that reporting to a component of an
entity that either has been disposed of (by sale, abandonment, or in a
distribution to owners) or is classified as held for sale. SFAS No. 144 is
effective for fiscal years beginning after December 15, 2001 and interim
periods within those fiscal years. The adoption of SFAS No. 144 did not
materially affect the Carve-out Businesses' combined financial statements.
In April 2002, the FASB issued SFAS No. 145, Rescission of FASB Statements
No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical
Corrections. SFAS No. 145 amends existing guidance on reporting gains and
losses on the extinguishment of debt to prohibit the classification of the
gain or loss as extraordinary, as the use of such extinguishments have
become part of the risk management strategy of many companies. SFAS No. 145
also amends SFAS No. 13 to require sale-leaseback accounting for certain
lease modifications that have economic effects similar to sale-leaseback
transactions. The provisions of the Statement related to the rescission of
Statement No. 4 is applied in fiscal years beginning after May 15, 2002.
Earlier application of these provisions is encouraged. The provisions of the
Statement related to Statement No. 13 were effective for transactions
occurring after May 15, 2002, with early application encouraged. The
adoption of SFAS No. 145 did not materially affect the Carve-out Businesses'
combined financial statements.
In June 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated
with Exit or Disposal Activities. SFAS No. 146 addresses financial
accounting and reporting for costs associated with exit or disposal
activities and nullifies Emerging Issues Task Force (EITF) Issue 94-3,
Liability Recognition for Certain Employee Termination Benefit and Other
Costs to Exit an Activity. The provisions of this Statement are effective
for exit or disposal activities that are initiated after December 31, 2002,
with early application encouraged. The adoption of SFAS No. 146 did not
materially affect the Carve-out Businesses' combined financial statements.
In November 2002, the FASB issued Interpretation No. 45, Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness to Others, an interpretation of FASB Statements
No. 5, 57, and 107 and a rescission of FASB Interpretation No. 34. This
Interpretation elaborates on the disclosure to be made by a guarantor in its
interim and annual financial statements about its obligations under
guarantees issued. The Interpretation also clarifies that a guarantor is
required to recognize, at inception of a guarantee, a liability for the fair
value of the
CARVE-OUT BUSINESSES OF CLEARBLUE TECHNOLOGIES, INC.
Notes to Combined Financial Statements
July 31, 2003 and 2002
obligation undertaken. The disclosure requirements are effective for
financial statements of interim or annual periods ending after December 15,
2002. The initial recognition and measurement provisions of the
Interpretation are applicable to guarantees issued or modified after
December 31, 2002. The application of the requirements of FIN 45 did not
have a material impact on the Carve-out Business's combined financial
position or results of operations.
In December 2002, the FASB issued SFAS No. 148, Accounting for Stock-Based
Compensation - Transition and Disclosure, an amendment of FASB Statement No.
123. This Statement amends FASB Statement No. 123, Accounting for
Stock-Based Compensation, to provide alternative methods of transition for a
voluntary change to the fair value method of accounting for stock-based
employee compensation. In addition, this Statement amends the disclosure
requirements of Statement No. 123 to require prominent disclosures in both
annual and interim financial statements. Certain of the disclosure
modifications are required for fiscal years ending after December 15, 2002.
As no options were issued in the applicable periods, such disclosures have
been excluded.
In January 2003, the FASB issued Interpretation No. 46, Consolidation of
Variable Interest Entities, an interpretation of ARB No. 51. This
Interpretation addresses the consolidation by business enterprises of
variable interest entities as defined in the Interpretation. The
Interpretation applies immediately to variable interests in variable
interest entities created after January 31, 2003, and to variable interests
in variable interest entities obtained after January 31, 2003. For nonpublic
enterprises, such as the Carve-out Businesses, with a variable interest in a
variable interest entity created before February 1, 2003, the Interpretation
is applied to the enterprise no later than the end of the first annual
reporting period beginning after June 15, 2003. The application of this
Interpretation is not expected to have a material effect on the Carve-out
Business's financial statements. The Interpretation requires certain
disclosures in financial statements issued after January 31, 2003 if it is
reasonably possible that it will consolidate or disclose information about
variable interest entities when the Interpretation becomes effective.
In May 2003, the FASB issued SFAS No. 150, Accounting for Certain Financial
Instruments with Characteristics of Both Liabilities and Equity, which
establishes standards for how an issuer of financial instruments classifies
and measures certain financial instruments with characteristics of both
liabilities and equity. It requires that an issuer classify a financial
instrument that is within its scope as a liability (or an asset in some
circumstances) if, at inception, the monetary value of the obligation is
based solely or predominantly on a fixed monetary amount known at inception,
variations in something other than the fair value of the issuer's equity
shares or variations inversely related to changes in the fair value of the
issuer's equity shares. This Statement is effective for financial
instruments entered into or modified after May 31, 2003, and otherwise is
effective at the beginning of the first interim period beginning after June
15, 2003. The adoption of SFAS No. 150 is not expected to have a material
impact on the Carve-out Businesses' combined financial position or results
of operations.
CARVE-OUT BUSINESSES OF CLEARBLUE TECHNOLOGIES, INC.
Notes to Combined Financial Statements
July 31, 2003 and 2002
(3) CONCENTRATIONS OF CREDIT RISK
The carrying value of the Carve-out Businesses' financial instruments,
including cash and cash equivalents, accounts receivable, notes receivable,
and accounts payable, approximates fair value. Financial instruments that
potentially subject the Carve-out Businesses to concentrations of credit
risk are cash equivalents and major customers. The Carve-out Businesses
maintains cash and cash equivalents with one major financial institution.
Accounts at the institution are insured by the Federal Deposit Insurance
Corporation up to $100,000. With respect to major customers, the Carve-out
Businesses limits their credit risk by performing ongoing credit evaluations
and, when deemed necessary, by requiring letters of credit, guarantees, or
collateral. When required, the Carve-out Businesses maintains allowances for
credit losses, and to date, such losses have been within management's
expectation.
Customers that individually comprised greater than 10% of service revenue of
accounts receivable are summarized in the following table:
TEN MONTHS
YEAR ENDED ENDED
JULY 31, 2003 JULY 31, 2002
------------- -------------
Revenues:
Customer A $3,548,263 $3,424,004
Customer B 3,214,202 2,964,462
Accounts receivable:
Customer A $ 744,737 $ 57,239
Customer B 284,101 58,716
(4) BUSINESS COMBINATION
PURCHASE TRANSACTION
On September 20, 2001, ClearBlue purchased substantially all of the assets,
including customer agreements, and assumed certain liabilities of 22
operating sites of Colo.com in the bankruptcy proceedings of Colo.com under
Chapter 11 of the United States Bankruptcy Code. Colo.com was a
carrier-neutral collocation company managing large-scale facilities for the
collocation and hosting of mission-critical services to support Internet,
telecommunications, and data markets. As a result of the acquisition,
ClearBlue Technologies, Inc. has established facilities for the collocation
and hosting of mission-critical services to support the Internet,
telecommunications, and data markets throughout North America.
CARVE-OUT BUSINESSES OF CLEARBLUE TECHNOLOGIES, INC.
Notes to Combined Financial Statements
July 31, 2003 and 2002
Total consideration paid, including direct acquisition costs related to the
Carve-out Businesses of ClearBlue Technologies, Inc., aggregated
$16,627,667. The following table summarizes the fair values of the
assets acquired at the date of acquisition:
Customer relationships $ 3,619,169
Leaseholds and improvements 5,139,184
Equipment 2,939,218
Restricted cash and cash equivalents 2,373,615
Market advantaged leases 2,392,997
Security deposits 163,484
-----------
Total $16,627,667
===========
(5) PROPERTY AND EQUIPMENT
Property and equipment summarized by major category consisted of the
following at July 31:
2003 2002
----------- ----------
Leasehold improvements $ 5,246,544 $ 5,123,755
Data centers and related equipment 4,900,152 5,020,359
Office and computer equipment 125,932 22,011
Furniture and fixtures 66,033 66,033
----------- -----------
10,338,661 10,232,158
Less accumulated depreciation 4,465,209 2,170,148
----------- -----------
$ 5,873,452 $ 8,062,010
=========== ===========
Included in data centers and related equipment is data center equipment
acquired under capital leases of $1,403,544 with accumulated depreciation of
$1,050,973. Depreciation expense for the year ended July 31, 2003 and ten
months ended July 31, 2002 was $2,295,061 and $2,170,148, respectively.
(6) NOTE RECEIVABLE
In April 2002, the Carve-out Businesses entered into an agreement with a
customer to amend its existing Master Co-location and Service Agreement in
consideration of a note totalling $2,700,000 by the customer to the
Carve-out Businesses. The note is payable in quarterly installments of
$225,000 over three-years. The Carve-out Businesses have recognized a note
receivable and corresponding deferred revenue in the combined financial
statements. Deferred revenue is being recognized as revenue on a monthly
basis over the modification period.
CARVE-OUT BUSINESSES OF CLEARBLUE TECHNOLOGIES, INC.
Notes to Combined Financial Statements
July 31, 2003 and 2002
(7) INTANGIBLE ASSETS
Intangible assets summarized by major category consisted of the following
at July 31:
2003 2002
---------- ----------
Customer relationships $3,619,169 $3,619,169
Market advantaged leases -- 2,392,997
---------- ----------
3,619,169 6,012,166
Less accumulated amortization 1,269,362 951,663
---------- ----------
$2,349,807 $5,060,503
========== ==========
Customer relationships are amortized over a five-year period. Market
advantaged leases are amortized over the life of the lease, ranging from
7-14 years. Amortization expense for the year ended July 31, 2003 and
ten-months ended July 31, 2002 was $1,030,392 and $858,659, respectively.
As part of the Carve-out Businesses' impairment analysis performed at July
31, 2003, it was determined that the unamortized market advantaged leases
of $1,830,975 was fully impaired and the Carve-out Businesses' recorded a
charge to current earnings.
(8) ACCRUED LIABILITIES
Accrued liabilities consisted of the following at July 31:
2003 2002
---------- ----------
Accrued rent, utilities and other operating expenses $ 238,270 $ 371,710
Accrued professional services 475,332 --
Accrued salaries and payroll taxes 49,771 38,835
Accrued vacation 78,478 22,009
Accrued real estate and property taxes 263,789 141,227
Due to related party 291,402 --
Taxes payable 374,394 707,357
Other accruals 3,392 14,357
---------- ----------
Total accrued liabilities $1,774,828 $1,295,495
========== ==========
(9) COMMITMENTS
LEASE COMMITMENTS
The Carve-out Businesses have various lease and other commitments that
expire at various times throughout 2015. Operating leases shown below are
primarily for facility costs. As of July 31, 2003 and 2002, the Carve-out
Businesses also lease certain data center infrastructure and equipment
under capital leases. Obligations under the capital lease have been
recorded in the
CARVE-OUT BUSINESSES OF CLEARBLUE TECHNOLOGIES, INC.
Notes to Combined Financial Statements
July 31, 2003 and 2002
accompanying financial statements at the present value of future minimum
lease payments discounted at an interest rate of 15%. Future commitments
are as follows:
TOTAL 1 YEAR 1-3 YEARS 4-5 YEARS THEREAFTER
----------- ----------- ----------- ----------- -----------
Operating leases $46,178,662 $5,603,628 $11,207,257 $11,207,257 $18,160,520
Capital lease obligations 361,310 361,310 -- -- --
----------- ---------- ----------- ----------- -----------
Total $46,539,972 $5,964,938 $11,207,257 $11,207,257 $18,160,520
=========== ========== =========== =========== ===========
The Carve-out Businesses incurred total operating lease expense, primarily
related to certain facilities and other real estate expenses, under
noncancelable operating leases, of approximately $6,403,000 and $5,354,000
for the year ended July 31, 2003 and for ten months ended July 31, 2002,
respectively.
(10) RELATED PARTY TRANSACTIONS
On January 1, 2003, the Carve-Out Businesses and NaviSite entered into an
Outsourcing Agreement whereby NaviSite provides certain management
services as well as manages day-to-day operations of the Carve-Out
Businesses' data centers. NaviSite charges the Carve-Out Businesses actual
costs incurred plus a 5% mark-up on labor costs only. In fiscal year 2003,
NaviSite charged the Carve-Out Businesses approximately $291,402 under
this agreement.
(11) INCOME TAXES
Total federal and state income tax expenses (benefit) consist of the following:
7/31/2003 7/31/2002
------------------------------------------------------------------------------
Current Deferred Total Current Deferred Total
------------------------------------------------------------------------------
Federal $(485,660) $485,660 $ - $485,660 $(485,660) $ -
State 152,697 152,697 221,659 221,659
------------------------------------------------------------------------------
$(332,963) $485,660 $152,697 $707,319 %(485,660) $221,659
==============================================================================
The actual tax expense for July 31, 2003 and 2002 differs from the expected tax
expense as follows:
Computed "expected" tax expense (benefit) $(1,383,884) $(398,720)
State taxes, net of federal income tax benefit 100,780 146,294
Losses not benefitted 1,435,801 474,085
----------- ---------
Total $ 152,697 $ 221,659
=========== =========
The tax effects of temporary differences that give rise to significant portion
of the deferred tax assets and liabilities at July 31, 2003 and 2002 are as
follows:
7/31/2003 7/31/2002
--------- ---------
Accruals and Reserves 639,063 246,330
Depreciation and Amortization 1,429,968 858,983
Net Operating Loss Carryforwards 230,226
----------- ----------
Total deferred tax assets 2,299,257 1,105,313
Valuation Allowance (2,299,257) (619,653)
----------- ----------
Net deferred tax assets $ -- $ 485,660
=========== ==========
During the year ended July 31, 2003 and ten months ended July 31, 2002,
the valuation allowance increased $1,679,604 and $619,653, respectively.
The Carve-out Businesses have a net operating loss carryforward for
federal tax purposes of approximately $374,838, expiring in 2023. The
Carve-out Businesses also has state operating loss carryforwards for
approximately $1,650,554 expiring from 2013 to 2018. The utilization of
these net operating losses may be limited in future periods pursuant to
Internal Revenue Code Section 382 as a result of future ownership changes.
(12) SUBSEQUENT EVENT - NAVISITE'S PURCHASE OF CERTAIN ASSETS AND LIABILITIES
OF CLEARBLUE TECHNOLOGIES INC.
As described in note 1, on August 8, 2003 Navisite acquired certain assets
and assumed certain liabilities of ClearBlue. Condensed financial
information
CARVE-OUT BUSINESSES OF CLEARBLUE TECHNOLOGIES, INC.
Notes to Combined Financial Statements
July 31, 2003 and 2002
related to the Carve-out Businesses acquired by Navisite is set forth in
the following tables:
CARVE-OUT BUSINESSES OF CLEARBLUE TECHNOLOGIES, INC.
Notes to Combined Financial Statements
July 31, 2003 and 2002
Condensed Balance Sheets
July 31, 2003 and 2002
July 31, 2003
-------------
Combined Dallas New York San Fran S. Clara Combined
6 Sites Site Site Site Site 10 Sites
-------- ----- ----- ----- ----- --------
Assets
Current assets $ 2,841,363 $ 775,868 $ 459,669 $ 2,321,571 $ (914,824) $ 5,483,647
Property, plant & equip., net 3,145,891 602,486 884,189 601,402 639,484 5,873,452
Intangibles, net 1,072,723 123,458 459,121 564,509 129,996 2,349,807
Other non-current assets 1,384,697 216,150 618,683 1,042,436 390,019 3,651,985
----------- ----------- ----------- ----------- ----------- -----------
Total Assets $ 8,444,674 $ 1,717,962 $ 2,421,662 $ 4,529,918 $ 244,675 $17,358,891
=========== =========== =========== =========== =========== ===========
Liabilities and Stockholder's Equity
Current liabilities 1,940,345 592,797 489,033 844,906 250,547 4,117,628
Deferred rent 244,262 -- 840,494 175,406 259,015 1,519,177
Other long-term liabilities 182,250 162,000 -- 263,250 67,500 675,000
----------- ----------- ----------- ----------- ----------- -----------
Total liabilities 2,366,857 754,797 1,329,527 1,283,562 577,062 6,311,805
Stockholder's equity 6,077,817 963,165 1,092,135 3,246,356 (332,387) 11,047,086
----------- ----------- ----------- ----------- ----------- -----------
Total Liab & Stockholder's Equity $ 8,444,674 $ 1,717,962 $ 2,421,662 $ 4,529,918 $ 244,675 $17,358,891
=========== =========== =========== =========== =========== ===========
July 31, 2002
-------------
Combined Dallas New York San Fran S. Clara Combined
6 Sites Site Site Site Site 10 Sites
------- ---- ---- ---- ---- --------
Assets
Current assets $ 2,278,842 $ 565,939 $ 904,260 $ 1,882,569 $ (544,217) $ 5,087,393
Property, plant & equip., net 4,589,041 763,444 1,178,332 708,178 823,015 8,062,010
Intangibles, net 1,279,851 630,939 (1,148,841) 2,795,161 1,503,393 5,060,503
Other assets 1,974,814 432,150 603,326 1,372,721 480,018 4,863,029
----------- ----------- ----------- ----------- ----------- -----------
Total Assets $10,122,548 $ 2,392,472 $ 1,537,077 $ 6,758,629 $ 2,262,209 $23,072,935
=========== =========== =========== =========== =========== ===========
Liabilities and Stockholder's Equity
Current liabilities 2,743,737 615,103 546,547 933,697 369,834 5,208,918
Deferred rent 128,320 -- 259,319 79,730 126,448 593,817
Long-term debt 350,119 -- 75,050 -- -- 425,169
Other liabilities 425,250 378,000 614,250 157,500 1,575,000
----------- ----------- ----------- ----------- ----------- -----------
Total liabilities 3,647,426 993,103 880,916 1,627,677 653,782 7,802,904
Stockholder's equity 6,475,122 1,399,369 656,161 5,130,952 1,608,427 15,270,031
----------- ----------- ----------- ----------- ----------- -----------
Total Liab & Stockholder's Equity $10,122,548 $ 2,392,472 $ 1,537,077 $ 6,758,629 $ 2,262,209 $23,072,935
=========== =========== =========== =========== =========== ===========
CARVE-OUT BUSINESSES OF CLEARBLUE TECHNOLOGIES, INC.
Notes to Combined Financial Statements
July 31, 2003 and 2002
Condensed Income Statements
For the Years Ended July 31, 2003 and 2002
For the year ended July 31, 2003
--------------------------------
Combined Dallas New York San Fran S. Clara Combined
6 Sites Site Site Site Site 10 Sites
------- ---- ---- ---- ---- --------
Revenue $ 7,912,222 $ 2,065,799 $ 1,839,035 $ 2,382,545 $ 1,153,577 $ 15,353,178
Cost of revenue 6,944,639 1,924,276 2,695,209 2,263,399 1,675,560 15,503,083
------------ ------------ ------------ ------------ ------------ ------------
Gross profit (loss) 967,583 141,523 (856,174) 119,146 (521,983) (149,905)
Operating expenses 1,261,704 577,023 (1,409,503) 2,024,446 1,418,828 3,872,498
------------ ------------ ------------ ------------ ------------ ------------
Income (loss) from operations (294,121) (435,500) 553,329 (1,905,300) (1,940,811) (4,022,403)
Other income (expense) (61,131) -- (7,429) 20,715 -- (47,845)
------------ ------------ ------------ ------------ ------------ ------------
Income (loss) before taxes (355,252) (435,500) 545,900 (1,884,585) (1,940,811) (4,070,248)
Income taxes 42,773 -- 109,924 -- -- 152,697
------------ ------------ ------------ ------------ ------------ ------------
Net income (loss) $ (398,025) $ (435,500) $ 435,976 $ (1,884,585) $ (1,940,811) $ (4,222,945)
============ ============ ============ ============ ============ ============
For the year ended July 31, 2002
--------------------------------
Combined Dallas New York San Fran S. Clara Combined
6 Sites Site Site Site Site 10 Sites
------- ---- ---- ---- ---- --------
Revenue $ 6,643,920 $ 1,159,955 $ 2,583,128 $ 3,299,714 $ 812,198 $ 14,498,915
Cost of revenue 6,360,695 1,420,816 2,109,779 1,907,545 1,479,243 13,278,078
------------ ------------ ------------ ------------ ------------ ------------
Gross profit (loss) 283,225 (260,861) 473,349 1,392,169 (667,045) 1,220,837
Operating expenses 643,734 148,535 697,490 565,653 169,017 2,224,429
------------ ------------ ------------ ------------ ------------ ------------
Income (loss) from operations (360,509) (409,396) (224,141) 826,516 (836,062) (1,003,592)
Other income (expense) (160,115) -- (26,733) 17,735 -- (169,113)
------------ ------------ ------------ ------------ ------------ ------------
Loss before income taxes (520,624) (409,396) (250,874) 844,251 (836,062) (1,172,705)
Income taxes 84,078 -- 19,439 118,142 -- 221,659
------------ ------------ ------------ ------------ ------------ ------------
Net income (loss) $ (604,702) $ (409,396) $ (270,313) $ 726,109 $ (836,062) $ (1,394,364)
============ ============ ============ ============ ============ ============