EXHIBIT 99.1
ELEKOM CORPORATION
(A DEVELOPMENT STAGE ENTERPRISE)
BALANCE SHEET (UNAUDITED)
IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA
AT
SEPTEMBER 30,
1998
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ASSETS
Cash and cash equivalents........................................ $ 181
Accounts Receivable.............................................. 201
Prepaid expenses................................................. 130
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Total current assets........................................... 512
Other assets..................................................... 40
Property and equipment........................................... 491
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Total Assets................................................. $ 1,043
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LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable................................................. $ 263
Accrued payroll and related benefits............................. 131
Notes payable.................................................... 150
Current portion, capital lease obligations....................... 119
Deferred revenue................................................. 249
Other accrued liabilities........................................ 384
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Total current liabilities...................................... 1,296
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Capital lease obligation, net of current portion................. 33
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Commitments and contingencies
Shareholders' equity
Convertible preferred stock:
Series B, $.01 par value; 4,389,945 shares authorized, issued
and outstanding at September 30, 1998........................ 43
Series A, $.01 par value; 917,229 shares authorized, issued
and outstanding at September 30, 1998........................ 9
Common stock, $.01 par value; 9,692,826 shares authorized;
875,923 shares issued and outstanding at September 30, 1998... 10
Additional paid-in capital..................................... 11,128
Deficit accumulated during the development stage............... (11,476)
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Total shareholders' equity.................................... (286)
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Total liabilities and shareholders' equity................... $ 1,043
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See accompanying notes to unaudited interim financial statements
ELEKOM CORPORATION
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENT OF OPERATIONS
(UNAUDITED)
IN THOUSANDS EXCEPT SHARE AND PER SHARE DATA
NINE MONTHS ENDED
SEPTEMBER 30,
-----------------------
1998 1997
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Sales................................................. $ 430 $ -0-
Cost of sales......................................... 220 -0-
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Gross Profit........................................ 210 -0-
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Operating expenses:
Research and development............................ 1,551 850
Sales and marketing................................. 867 1,120
General and administrative.......................... 752 1,430
Depreciation........................................ 101
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Total operating expenses........................... 3,271 3,400
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Operating loss........................................ (3,061) (3,400)
Interest expense...................................... -0- 483
Other income.......................................... 42 (1)
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Loss before income tax expense........................ (3,019) (3,884)
Income tax expense.................................... -0- -0-
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Net loss.............................................. $ (3,019) $ (3,884)
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Basic and diluted net loss per common share........... $ (4.11) (77,680.00)
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Weighted average number of common shares outstanding.. 734,800 $ 50
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Pro forma basic and diluted net loss per common share. $ (0.48)
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Pro forma weighted average number of common shares
outstanding.......................................... 6,282,347
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See accompanying notes to unaudited interim financial statements
ELEKOM CORPORATION
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENT OF CASH FLOWS
(UNAUDITED)
IN THOUSANDS EXCEPT SHARE AND PER SHARE DATA
NINE MONTHS
ENDED
SEPTEMBER 30,
----------------
1998 1997
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Cash flows from operating activities
Net loss................................................... $(3,019) $(3,884)
Adjustments to reconcile net loss to net cash used in
operations
Depreciation.............................................. 101 115
Changes in assets and liabilities:
Accounts receivable...................................... (151) 8
Prepaid expenses and other assets........................ (147) 65
Accounts payable......................................... 228 26
Accrued payroll and related benefits..................... (105) 21
Deferred revenue......................................... 199 -0-
Other accrued liabilities................................ 294 (5)
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Net cash used in operating activities................... (2,600) (3,654)
Cash flows from investing activities
Capital expenditures....................................... (228) (136)
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Cash flows from financing activities
Borrowings from line of credit............................. 150 -0-
Payment of capital lease obligations....................... (76) (69)
Proceeds from issuance of Series B convertible preferred
stock..................................................... 91 -0-
Proceeds from exercise of stock options.................... 67 -0-
Net borrowing from Egghead, Inc. .......................... -0- 2,520
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Net cash provided by financing activities............... 232 2,451
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Net increase (decrease) in cash and cash equivalents......... (2,596) (1,339)
Cash and cash equivalents at beginning of period............. 2,777 1,683
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Cash and cash equivalents at end of period................... $ 181 $ 344
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See accompanying notes to unaudited interim financial statements
ELEKOM CORPORATION
NOTES TO UNAUDITED INTERIM FINANCIAL STATEMENTS
1. BASIC OF PRESENTATION
The balance sheet presented as of September 30, 1998 and for the nine months
ended September 30, 1998 and 1997 has not been audited. In the opinion of
management, the unaudited interim balance sheet, statements of income and of
cash flows include all adjustments consisting solely of normal recurring
adjustments necessary to present fairly the financial position, results of
operations and cash flows as of and for the periods presented of ELEKOM
Corporation (the "Company").
The financial statements of the Company for all periods prior to November 10,
1997 reflect the results of operations, financial position, and cash flows of
ELEKOM as a wholly-owned subsidiary of Egghead and may not be indicative of
actual results of operations and financial position of the Company under other
ownership.
The statement of operations for the six months ended September 30, 1997
reflects certain expense items incurred by Egghead which were allocated to the
Company on a basis which management believes represents a reasonable allocation
of such costs to present ELEKOM as a stand-alone company. These allocations
consist primarily of corporate expenses such as executive and other
compensation, depreciation of corporate assets, rent expense and legal fees and
interest expenses on intercompany borrowings. The corporate expenses have been
allocated based on an estimate of Egghead personnel time dedicated to the
operations and management of ELEKOM. Interest expense has been allocated based
on ELEKOM's estimated borrowing rate (10%) and actual intercompany borrowings.
A summary of these allocation is as follows:
CORPORATE INTEREST
EXPENSE EXPENSE
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Six months ended September 30, 1997......................... $328,000 $439,000
BUSINESS
The Company was in the development stage as of and for the period from
inception through September 30, 1998. In connection with its development
activities, the Company has incurred costs to incorporate and establish its
business activities as well as the design and development of the Company's
initial product, ELEKOM Procurement, which was available for sale in June 1997.
As a result, cash requirements have exceeded cash receipts and the Company must
obtain interim financing or additional capital to continue its development,
sales and marketing efforts. Management plans to obtain such financing or
capital during the year; however, there can be no assurance that financing or
capital can be obtained. As a result, even though the accompanying financial
statements have been prepared assuming that the Company will continue as a
going concern, there is substantial doubt about the Company's ability to
continue as a going concern. The accompanying financial statements do not
include any adjustments that might result from the outcome of this uncertainty.
NET LOSS PER SHARE
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128 (FAS 128), Earnings per Share. FAS 128
replaced the previously
ELEKOM CORPORATION
NOTES TO UNAUDITED INTERIM FINANCIAL STATEMENTS--CONTINUED
reported primary and fully diluted earnings per share with basic and diluted
earnings per share. Basic earnings per share excludes any dilutive effects of
options and convertible securities. Earnings per share for 1996 reflect the
adoption of FAS 128. Net loss per share assuming dilution for the nine months
ended September 30, 1998 and 1997 is equal to net loss per share due to the
fact that the effect of common stock equivalents outstanding during the periods
is anti-dilutive.
Given the changes in ELEKOM's capital structure as a result of the 1997
recapitalization and the changes to be effected as a result of the Merger pro
forma earnings per share is presented. Pro forma earnings per share is
calculated based on the number of shares of common stock and preferred stock
outstanding at September 30, 1998 and has been adjusted to give effect to the
conversion of all shares of preferred stock into common stock that will occur
in connection with the Merger. Stock options outstanding at each period have not
been included in the loss per share calculations as their effect is anti-
dilutive.