UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d) of The Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) January 17, 2006
AFTERSOFT GROUP, INC. f/k/a W3 Group, Inc.
(Exact name of registrant as specified in its charter)
Delaware 0-27083 84-1108035
(State or other jurisdiction (Commission (I.R.S. Employer
of incorporation) File Number) Identification No.)
Savannah House 5th Floor 11Charles II Street
London SW1Y 4AU UK 83728
(Address of principal executive offices) (Zip Code)
60 East 42nd Street, Suite 1163
New York, NY 10165
(Former name or former address if changed since last report) (Zip Code)
+44 207 451 2468
(Registrant's telephone number, including area code)
Check the appropriate box below if the Form 8-K filing is intended to
simultaneously satisfy the filing obligation of the registrant under any of the
following provisions (see General Instruction A.2. below):
|_| Written communications pursuant to Rule 425 under the Securities Act (17 CFR
230.425
|_| Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR
240.14a-12
|_| Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange
Act (17 CFR 240.14d-2(b))
|_| Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange
Act (17 CFR 240.13e-4(c))
Section 4 - Financials Statements
"Item 4.02 Non-reliance on Previously released Financial Statements or a Related
Audit Report or Completed Interim Review.
The Company filed a Form 8-K on December 30, 2005 relating to events occurring
on December 21, 2005. The filing contained the following report and financial
statements in error:
o The June 30, 2005 and 2004 consolidated balance sheets and the
consolidated statements of income, stockholders' equity and cash
flows for the years then ended of Aftersoft Group, Inc., along with
accompanying notes to the consolidated financial statements;
o The Report of Independent Registered Accounting Firm of Corbin &
Company, LLP on the June 30, 2005 and 2004 financial statements
mentioned above; and
o The unaudited interim consolidated balance sheet as of September 30,
2005 and the unaudited interim consolidated statements of operations
and cash flows for the three months ended September 30, 2005 and
2004, along with the accompanying notes to the consolidated
financial statements.
In December, 2005, the Company was in the process of drafting two completely
different 8-K filings at the same time: one was to inform the public of the
Company's change in its fiscal year end from December 31 to June 30; the other
was to inform the public of the Company's acquisition of Aftersoft Group, Inc.
and to present the required information relating to the acquisition. Due to a
simple miscommunication, the Company's UK office inadvertently filed both 8-Ks
on December 30, 2005, when they were only supposed to file the first 8-K dealing
with the change in the Company's fiscal year end. As of December 30, 2005, the
audit of the June 30, 2005 and 2004 consolidated financial statements of
Aftersoft Group, Inc. was still in process, as was the review of the unaudited
interim consolidated financial statements as of September 30, 2005 and for the
three months ended September 30, 2005 and 2004. The Company received
notification on January 2, 2006 (through an email communication dated December
30, 2005) by Aftersoft Group's independent registered public accounting firm
that they had not completed their audit or interim review and that their report
and the above-referenced financial statements were filed without their knowledge
and permission. After thorough investigation, the board of directors (in the
absence of an audit committee) and management of the Company concluded on
January 6, 2006 that the Form 8-K had been mistakenly filed. The Board of
Directors and its advisors discussed the matters disclosed in this filing with
its independent registered public accounting firm at length and in detail, and
have provided them with the disclosures we are making here in response to Item
4.02. Their letter stating their agreement with these statements is included in
Exhibit 16.1 attached to this filing. We sincerely regret this mistake and we
have taken steps to ensure this type of error does not recur by requiring both
certifying officers to the filing to obtain the approval of the independent
registered public accounting firm to release its audit report in any future
filing containing such report, or to confirm completion of the interim review
with the independent registered public accounting firm for any future filing
containing unaudited interim financial statements. The above mentioned report
and financial statements were completed and filed in a Form 8-KA dated February
1, 2005."
Section 1 - Registrant's Business and Operations
Item 1.01 Entry into a Material Definitive Agreement.
On December 21, 2005, W3 Group, Inc. (the "Company") consummated an Acquisition
Agreement ("Agreement") to acquire all of the outstanding shares of common stock
of Aftersoft Group, Inc., a Delaware corporation ("Aftersoft") in exchange for
the issuance of 32,500,000 newly issued shares of the Company, par value $.0001
per share (the "Common Stock"), to Auto Data Network, Inc. (ADN), a Delaware
corporation and the sole shareholder of Aftersoft. The Company reported entry
into the Agreement on the Current Report on Form 8-K dated July 22, 2005.
The shares so issued are "restricted shares" and may not be disposed of except
in compliance with an applicable exemption from registration under U.S.
securities laws or pursuant to an effective registration statement under U.S.
securities laws. Pursuant to the Agreement and as a result of consummation of
the Agreement, the current shareholders of the Company own 1,601,167 shares, or
approximately 4.7% of the 34,101,167 total outstanding shares of the Company
Common Stock and ADN owns 32,500,000 shares approximately 95.3% of the total
outstanding shares. .Concurrent with the closing of the transaction, the Board
of Directors of the Company appointed three additional directors designated by
ADN to serve until the next annual election of directors. In addition,
concurrent with the close of the transaction, the Company (1) changed its
corporate name from W3 Group, Inc. to Aftersoft Group, Inc., (2) changed its
corporate address to California, and replaced the Company's corporate officers..
The foregoing summary of the terms and conditions of the Agreement does not
purport to be complete and is qualified in its entirety and incorporated by
reference to the full text of the Agreement filed as Exhibit 10.1 to the Current
Report on Form 8-K dated July 22, 2005.
2
Section 2 - Financial Information
Item 2.01 Completion of Acquisition or Disposition of Assets.
See the response to Item 1.01 above, which is specifically incorporated herein
by reference. The parties to the Agreement were unrelated third parties prior to
the completion of the Acquisition on December 21, 2005 and the terms thereof
were negotiated on an arms-length basis.
Aftersoft Group is a leading provider of business and supply chain management
solutions primarily to automotive parts manufacturers, retailers, tire and
service chains, independent installers and wholesale distributors in the
automotive aftermarket. The Company conducts its businesses through subsidiaries
with operations in Europe and North America. MAM Software Limited is the leading
supplier of software to the automotive parts market in the U.K. MAM Software
consists of MAM Autopart Ltd, MAM AutoCat Ltd. and MAM Autowork Ltd., which are
all based in Sheffield, UK. Aftersoft Network North America, Inc. is comprised
of AFS Warehouse Distribution Management, Inc. and AFS Tire Management Inc.,
which are based in San Juan Capistrano, California and AFS Autoservice, Inc.,
which is based in Allentown PA. Aftersoft Network North America was formerly
known as CarParts Technologies Acquisition Corp. and AFS Tire Management was
formerly known as CarParts Technologies, Inc. Together these subsidiaries are
the second largest supplier of software to the automotive parts market in the
U.S.
Item 2.01(f)
ITEM 2.01(f) FINANCIAL STATEMENTS
PART F/S
Aftersoft Group, Inc.
These Financial Statements have not been reviewed by our Independent Registered
Public Accountants. The Company will be filing an amended restated 8K/A.
Consolidated Financial Statements June 30, 2005 and 2004
Aftersoft Group, Inc. Consolidated Balance Sheets
(In thousands, except share amount)
As of
June 30, 2005
ASSETS
Current Assets
Cash $ 194
Accounts Receivable, net of reserve
of $190,144 in 2005 3,537
Inventories 358
Notes Receivable 510
Other Current Assets 115
--------------
Total Current Assets 4,714
Property & Equipment, Net 521
Other Assets
Goodwill 19,761
Complete Technology, net 2,747
Customer Contracts / Relationships, net 3,338
Data Services, net 311
Backlog, net 0
Software Development capitalized costs, net 939
Other Long Term Assets 36
--------------
Net Other Assets 27,133
--------------
Total Assets $ 32,368
==============
LIABILITIES
Current Liabilities
Accounts payable $ 1,928
Accrued expenses 682
Accrued legal expenses 1,986
Current Portion of long term debt 1,072
Deferred Income 1,634
Taxes Payable 492
Other current liabilities 23
--------------
Total Current Liabilities 7,817
Long Term Liabilities
Deferred Income 960
Long Term Debt 879
Loan - ADN Inc 884
Discontinued Ops 487
--------------
Total Liabilities 11,026
STOCKHOLDERS' EQUITY
Common stock
Par value $0.001; authorized,
issued and outstanding 1,500
at June 30, 2005 0
Additional Paid-in-Capital 20,937
Other Comp Inc/(Loss) (345)
Retained Earnings 749
--------------
Total Stockholders Equity 21,341
--------------
Total Liabilities & Stockholders' Equity $ 32,367
==============
The accompanying notes are an integral part of these financial statements.
3
Aftersoft Group, Inc. Consolidated Statement of Operations
(In thousands, except share amount)
For Years Ending June 30,
----------------------------
2005 2004
------------ ------------
Revenues $ 22,062 $ 12,598
Cost of Revenues 9,225 5,853
------------ ------------
Gross Profit 12,837 6,745
Operating Expenses
Research and development 2,665 584
Sales and marketing 1,970 702
General and administrative 4,377 4,101
Depreciation and amortization 1,421 316
------------ ------------
Total Operating Expenses 10,433 5,702
Operating income / (loss) 2,404 1,042
Other income / (expense)
Investment income 0 0
Interest and other income (12) 0
Interest expense (105) (19)
------------ ------------
Total other income / (expense) (117) (19)
Pre-tax income / (loss) 2,287 1,023
Provision for income taxes* 231 0
Goodwill written-off 0 0
------------ ------------
Net income / (loss) $ 2,056 $ 1,023
Foreign Curreny Translation loss (3) (342)
------------ ------------
Comprehensive Income $ 2,053 $ 681
============ ============
Earnings Per share attributed to common stock $ 1,450.75 $ 1,547.80
Average number of shares of common stock outstanding - basic 1,417 661
Earnings Per share attributed to common stock assuming dilution $ 1,450.75 $ 1,547.80
Average number of shares of common stock outstanding - fully diluted 1,417 661
The accompanying notes are an integral part of these financial statements.
13
Aftersoft Group, Inc. Consolidated Equity Rollforward
(In thousands, except share amounts)
Common Stock Foreign
---------------------------- Paid In Currency Accumulated Total
Shares Amount Capital Translation Income/(deficit) Equity
------------ ------------ ------------ ------------ ------------ ------------
Balance, June 30, 2003 661 0 $ 9,063 -- $ (2,330) $ 6,733
Foreign Currency
Translation -- -- -- (342) -- (342)
Net income for the year -- -- -- -- 1,023 1,023
------------ ------------ ------------ ------------ ------------ ------------
Balance, June 30, 2004 661 0 9,063 (342) (1,307) 7,414
CarParts Technologies
Acquisition 839 0 11,874 -- -- 11,874
Foreign Currency
Translation -- -- -- (3) -- (3)
Net income for the year -- -- -- -- 2,056 2,056
------------ ------------ ------------ ------------ ------------ ------------
Balance, June 30, 2005 1,500 0 $ 20,937 $ (345) $ 749 $ 21,341
The accompanying notes are an integral part of these financial statements.
4
Aftersoft Group, Inc. Consolidated Statement of Cashflows
(In thousands)
For Years Ending June 30,
--------------------------------
2005 2004
-------------- --------------
Operating activities
Net Income $ 2,056 $ 1,023
Adjustments to Net Income
Depreciation and Amortization 1,517 316
Deferred income taxes (114) (1,115)
Other, net 0 0
Changes in assets and liabilities (net of the effect of acquisition):
Trade accounts receivable 194 (718)
Inventories 107 57
Prepaid expenses and other assets 155 334
Accounts payable 542 388
Deferred revenue (4,498) 737
Accrued expenses and other liabilities (55) (570)
-------------- --------------
Net cash provided by operating activities (96) 452
Investing Activities
Cash acquired in acquisition 490 0
Purchase of property and equipment (370) (225)
Capitalized software development costs (285) (86)
Proceeds from sale of assets 0 0
-------------- --------------
Net cash provided by (used in) investing activities (165) (311)
Financing Activities
Proceeds from debt facility 605 416
Debt issuance costs 0 0
Payment on long-term debt (155) (224)
-------------- --------------
Net cash provided by (used in) financing activities 450 192
Effect of exchange rate changes (2) (342)
-------------- --------------
Net change in cash and cash equivalents 187 (9)
Cash and cash equivalents, beginning of period 7 16
-------------- --------------
Cash and cash equivalents, end of period $ 194 $ 7
============== ==============
Supplemental disclosures of cash flow information Cash paid during the period
for:
Interest (105) (19)
Income taxes 15 0
non cash transactions during the period for:
CarParts Technologies, Inc. acquisition
Cash $ 490,455
Current Assets 1,131,706
Property and equipment 140,360
Other Long Term Assets 36,722
Current Liabilities (4,115,435)
Deferred Income (4,872,022)
Long Term Debt (1,150,998)
--------------
Discontinued Ops (485,850)
Estimated fair value of tangible net assets acquired (9,315,517)
Goodwill 15,889,779
Complete Technology 1,760,000
Customer Contracts / Relationships 3,100,000
Backlog, 440,000
--------------
$ 11,874,262
==============
The accompanying notes are an integral part of these financial statements.
5
AFTERSOFT GROUP, INC.
NOTES TO FINANCIAL STATEMENTS
FOR YEAR ENDING JUNE 30, 2005
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING PRACTICES
The relevant accounting policies and procedures are listed below.
Basis of Presentation
As of June 30, 2005, Aftersoft Group, Inc. was a wholly subsidiary of Auto Data
Network, Inc.
Aftersoft Group is a leading provider of business and supply chain management
solutions primarily to automotive parts manufacturers, retailers, tire and
service chains, independent installers and wholesale distributors in the
automotive aftermarket. The Company conducts its businesses through subsidiaries
with operations in Europe and North America. MAM Software Limited is the leading
supplier of software to the automotive parts market in the U.K. MAM Software
consists of MAM Autopart Ltd, MAM AutoCat Ltd. and MAM Autowork Ltd., which are
all based in Sheffield, UK. Aftersoft Network North America, Inc. is comprised
of AFS Warehouse Distribution Management, Inc. and AFS Tire Management Inc.,
which are based in San Juan Capistrano, California and AFS Autoservice, Inc.,
which is based in Allentown PA. Aftersoft Network North America was formerly
known as CarParts Technologies Acquisition, Inc. and AFS Tire Management was
formerly known as CarParts Technologies, Inc. Together these subsidiaries are
the second largest supplier of software to the automotive parts market in the
U.S.
The Company operates on a June 30 fiscal year end.
Principles of Consolidation
The consolidated financial statements of the Company include the accounts of the
Company and its wholly owned subsidiaries. All significant intercompany accounts
and transactions have been eliminated in the consolidated financial statements.
Goodwill and Other Intangible Assets
Goodwill represents the excess of cost over the fair value of assets acquired.
Goodwill is tested for impairment on an annual basis, and between annual tests
if indicators of potential impairment exist, using a fair-value-based approach.
No impairment of goodwill has been identified during any of the periods
presented.
Concentrations of Credit Risk
Cash
The Company maintains cash balances at financial institutions that are insured
by the Federal Deposit Insurance Corporation ("FDIC") up to $100,000. At June
30, 2005, the Company had approximately $1,105,000 in these accounts in excess
of the FDIC insurance limits.
Customers
The Company performs periodic evaluations of its customers and maintains
allowances for potential credit losses as deemed necessary. The Company
generally does not require collateral to secure its accounts receivable. Credit
risk is managed by discontinuing sales to customers who are delinquent. The
Company estimates credit losses and returns based on management's evaluation of
historical experience and current industry trends. Although the Company expects
to collect amounts due, actual collections may differ from the estimated
amounts.
No customer accounted for more than 10% of the Company's revenues during the
years ended June 30, 2004, 2005.
Geographic Concentrations
The Company conducts business in the United States and Canada, and the United
Kingdom. The Company derives 43% of it revenue from its North American
operations and 57% from its UK operations.
6
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. Significant estimates made by the Company's
management include, but are not limited to, the collectibility of accounts
receivable, the recoverability of long-lived assets and valuation of deferred
tax assets. Actual results could materially differ from those estimates.
Fair Value of Financial Instruments
The Company's consolidated financial instruments consist of cash, accounts
receivable, related party notes payable, accounts payable and accrued expenses.
The carrying value of such instruments, approximate fair value as of June 30,
2005 due to short term maturities such as financial instruments. The difference
between the fair value and recorded values of the related party notes payable is
not significant.
Property and Equipment
Property and equipment are stated at cost, and are being depreciated using the
straight-line method over the estimated useful lives of the related assets,
ranging from three to five years. Leasehold improvements are amortized using the
straight-line method over the lesser of the estimated useful lives of the assets
or the related lease terms. Equipment under capital lease obligations is
depreciated over the shorter of the estimated useful lives of the related assets
or the term of the lease. Maintenance and routine repairs are charged to expense
as incurred. Significant renewals and betterments are capitalized. At the time
of retirement or other disposition of property and equipment, the cost and
accumulated depreciation are removed from the accounts and any resulting gain or
loss is reflected in the statement of operations.
Software Development Costs
Research and development costs, which consist of software development costs, are
expensed as incurred. Software development costs primarily include payments made
to employees and independent software developers under development agreements.
SFAS No. 86, Accounting for the Cost of Computer Software to be Sold, Leased, or
Otherwise Marketed, provides for the capitalization of certain software
development costs incurred after technological feasibility of the software is
established or for the development costs that have alternative future uses. The
Company believes that the technological feasibility of the underlying software
is not established until substantially all product development is complete,
which generally includes the development of a working model.
Goodwill
In accordance with Statement of Financial Accounting Standards No. 142, ("SFAS
142"), Goodwill and Other Intangible Assets, the Company ceased amortizing its
goodwill beginning in 2002. SFAS 142 addresses how intangible assets that are
acquired individually or with a group of other assets should be accounted for in
the financial statements upon their acquisition and after they have been
initially recognized in the financial statements. SFAS 142 requires that
goodwill and intangible assets that have indefinite useful lives not be
amortized but rather be tested at least annually for impairment, and intangible
assets that have finite useful lives be amortized over their useful lives. In
addition, SFAS 142 expands the disclosure requirements about goodwill and other
intangible assets in the years subsequent to their acquisition.
SFAS 142 provides specific guidance for testing goodwill and intangible assets
that will not be amortized for impairment. Goodwill will be subject to
impairment reviews by applying a fair-value-based test at the reporting unit
level, which generally represents operations one level below the segments
reported by the Company. An impairment loss will be recorded for any goodwill
that is determined to be impaired. The Company performs impairment testing on
all existing goodwill at least annually. Based on its analysis, the Company's
management believes that no impairment of the carrying value of its goodwill
existed at December 28, 2004. There can be no assurance however, that market
conditions will not change or demand for the Company's products and services
will continue which could result in impairment of goodwill in the future.
7
Long-Lived Assets
The Company's management assesses the recoverability of long-lived assets by
determining whether the depreciation and amortization of long-lived assets over
their remaining lives can be recovered through projected undiscounted future
cash flows. The amount of long-lived asset impairment, if any, is measured based
on fair value and is charged to operations in the period in which long-lived
asset impairment is determined by management. At June 30, 2005 the Company's
management believes there is no impairment of its long-lived assets. There can
be no assurance, however, that market conditions will not change or demand for
the Company's products and services will continue, which could result in
impairment of long-lived assets in the future.
Revenue Recognition
The Company recognizes revenue in accordance with the American Institute of
Certified Public Accountants Statement of Position ("SOP") 97-2, Software
Revenue Recognition, as amended by SOP 98-9, Modification of SOP 97-2, Software
Revenue Recognition, with Respect to Certain Transactions. Accordingly, software
license revenue is recognized when persuasive evidence of an arrangement exists,
delivery of the product component has occurred, the fee is fixed and
determinable, and collectibility is probable. If any of these criteria are not
met, revenue recognition is deferred until such time as all of the criteria are
met. In accordance with SOP 98-9, the Company accounts for delivered elements in
accordance with the residual method when arrangements include multiple product
components or other elements and vendor-specific objective evidence exists for
the value of all undelivered elements. Revenues on undelivered elements are
recognized once delivery is complete.
In those instances where arrangements include significant customization,
contractual milestones, acceptance criteria or other contingencies (which
represents the majority of the Company's arrangements), the Company accounts for
the arrangements using contract accounting, as follows:
1) When customer acceptance can be estimated, expenditures are capitalized as
work in process and deferred until completion of the contract at which time the
costs and revenues are recognized.
2) When customer acceptance cannot be estimated based on historical evidence,
costs are expensed as incurred and revenue is recognized at the completion of
the contract when customer acceptance is obtained.
The Company records amounts billed to customers in excess of recognizable
revenue as customer advances and deferred revenue in the accompanying
consolidated balance sheets.
Revenues for maintenance agreements are recognized ratably over the terms of the
service agreement.
Translation of Currency
Management has determined that the functional currency of its subsidiaries is
the local currency. Assets and Liabilities of the subsidiary are translated into
U.S. dollars at the year end exchange rates. Income and expenses are translated
at an average exchange rate for the period and the resulting translation loss
adjustments are accumulated as a separate component of stockholders' equity,
which totaled $3,932 and $17,932 at June 30, 2005 and 2004, respectively.
Foreign currency gains and losses from transactions denominated in other then
respective local currencies are included in income. There were no foreign
currency translation gains during the years ended June 30, 2005 and 2004.
Comprehensive Income
Comprehensive income includes all changes in equity (net assets) during a period
from non-owner sources. For the years ended June 30, 2005 and 2004, the
components of comprehensive income consist of foreign currency translation
losses.
Income Taxes
The Company accounts for income taxes under Statement of Financial Accounting
Standards No. 109 ("SFAS 109"), Accounting for Income Taxes. Under the asset and
liability method of SFAS 109, deferred tax assets and liabilities are recognized
for the future tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and liabilities and
their respective tax bases. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered or settled. Under
SFAS 109, the effect on deferred tax assets and liabilities of a change in tax
rates is recognized in income in the period the enactment occurs. Deferred
taxation is provided in full in respect of taxation deferred by timing
differences between the treatment of certain items for taxation and accounting
purposes. The deferred taxation has not been discounted.
8
Basic and Diluted Earnings Per Share
Basic earnings l per common share is computed based on the weighted average
number of shares outstanding for the period.
Diluted earnings per share is computed by dividing net income by the weighted
average shares outstanding assuming all potential dilutive common shares were
issued. Basic and diluted loss per share are the same for the periods presented
as the impact under the treasury stock method of dilutive stock options and
would have had no effect in shares outstanding for the years ended June 30, 2005
and 2004, respectively.
The following is a reconciliation of the numerator and denominators of the basic
and diluted loss per share computation for the years ending June 30:
2005 2004
------------- -------------
Numerator for basic and diluted income per share:
Net income available to common stockholders $ 2,056,080 $ 1,023,093
Denominator for basic and diluted income per common share:
Weighted average of common shares outstanding 1,417 661
------------- -------------
Net income per common share available to common
shareholders $ 1,450.75 $ 1,547.80
============= =============
Recent Accounting Pronouncements
In December 2004, the FASB issued SFAS No. 123 (revised 2004), Share-based
Payment (statement 123(R)") to provide investors and other users of financial
statements with more complete and neutral financial information by requiring
that the compensation cost relating to share-based payment transactions be
recognized in financial statements. The cost will be measured based on the fair
value of the equity or liability instrument used. Statement 123 (R) covers a
wide range of share based compensation arrangements including share options,
restricted share plans, performance based awards, share appreciation rights, and
employee share purchase plans. Statement 123(R) replaces SFAS No. 123 and
supercedes ABP 25. The company will be required to apply Statement 123(R) in
2006. The company is in the process of evaluating whether the adoption of
Statement 123(R) will have a significant impact on the Company's overall results
of operations or financial position.
In December 2004, the FASB issued SFAS No. 153, Exchange of Nonmonetary Assets -
and amendment to ABP Opinion No. 29, Accounting for Nonmonetary Transactions,
SFAS No. 153 eliminates the exception for non-monetary exchanges of similar
productive assets, which were previously required to be recorded on a carry over
basis rather then a fair value basis. Instead, this statement provides that
exchanges of non-monetary assets do not have a commercial substance be reported
at a carryover basis rather then a fair value basis. A non-monetary exchange is
considered to have commercial substance if the future cash flows of the entity
are expected to change significantly as a result of the exchange. The provisions
of this statement are effective for nonmonetary asset exchanges occurring in
fiscal periods beginning after June 15, 2005. The company does not expect the
adoption of SFAS No. 153 to have an impact on its financial condition or results
of operations.
In May 2005, the FASB issued SFAS No. 154, "Accounting Changes and Error
Corrections -- a replacement of APB Opinion No. 20 and FASB Statement No. 3."
This statement applies to all voluntary changes in accounting principle and
changes required by an accounting pronouncement where no specific transition
provisions are included. SFAS No. 154 requires retrospective application to
prior periods' financial statements of changes in accounting principle, unless
it is impracticable to determine either the period-specific effects or the
cumulative effect of the change. Retrospective application is limited to the
direct effects of the change; the indirect effects should be recognized in the
period of the change. This statement carries forward without change the guidance
contained in APB Opinion No. 20 for reporting the correction of an error in
previously issued financial statements and a change in accounting estimate.
However, SFAS No. 154 redefines restatement as the revising of previously issued
financial statements to reflect the correction of an error. The provisions of
SFAS No. 154 are effective for accounting changes and corrections of errors made
in fiscal periods that begin after December 15, 2005, although early adoption is
permitted. The Company does not anticipate that the implementation of this
standard will have a material impact on its condensed consolidated results of
operations, cash flows or financial position.
9
NOTE 2. ACQUISITIONS
The accompanying consolidated statements of income include the results of
operations of the acquired entities from the date of acquisition.
CarParts Technologies
On August 6, 2004, the stock of CarParts Technologies for total purchase
consideration of $11,874,262, comprised of the following
Equity $ 9,124,262
Debt Cancellation 2,750,000
------------
$ 11,874,262
============
The purchase price was allocated to the fair value of the assets acquired, as
follows:
Cash $ 490,455
Current Assets 1,131,706
Property and equipment 140,360
Other Long Term Assets 36,722
Current Liabilities (4,115,435)
Deferred Income (4,872,022)
Long Term Debt (1,150,998)
Discontinued Ops (485,850)
------------
Estimated fair value of tangible net assets acquired (9,315,517)
Goodwill 15,889,779
Complete Technology 1,760,000
Customer Contracts / Relationships 3,100,000
Backlog, 440,000
------------
$ 11,874,262
============
10
NOTE 3. INTANGIBLE ASSETS
Intangible assets consist of the following as of June 30, 2005
2005
------------
Assets not subject to amortization:
Goodwill $ 19,760,938
------------
Total 19,760,938
Assets subject to amortization:
Complete Technology, net 2,710,777
Customer Contracts / Relationships, net 3,337,837
Data Services, net 307,118
Backlog, net 0
Software development costs 1,605,361
Less accumulated amortization (625,230)
------------
Net Software Development Costs 980,131
------------
Net Amortizable intangible Costs 7,335,863
Total intangible assets $ 27,096,801
============
Years Ending June 30,
---------------------
2006 $ 1,275,156
2007 1,194,471
2008 1,024,136
2009 737,256
2010 and Longer 3,104,844
------------
Total $ 7,335,863
============
For the years ended June 30, 2005 and 2004, the Company recognized amortization
expense on its software development and goodwill costs of $1,204,605 and
$162,028, respectively.
11
NOTE 4. DISCONTINUED OPERATIONS
During June 2001, CarParts adopted a formal plan to abandon its internet
retailing business (the "B2C Business"). The internet retailing business offered
consumers parts and accessories for automobiles through the CarParts website,
CarParts.com. As a result of the foregoing, the CarParts consolidated financial
statements and notes to the consolidated financial statements reflect the
results of the B2C Business. CarParts did not operate this business for any
portion of 2005 or 2004.
The following is a summarized balance sheet of the discontinued operations as of
June 30:
2005
------------
Current assets $ 0
Other assets 0
------------
Total assets 0
Current liabilities 487,385
Other liabilities 0
------------
Total liabilities 487,385
------------
Net liability B2C Business $ 487,385
============
NOTE 5. PROPERTY AND EQUIPMENT
Property and equipment consist of the following as of June 30, 2005 and 2004:
2005
------------
Computer and office equipment $ 433,443
Furniture and equipment 371,584
Leasehold improvements 118,356
Equipment under capital leases 290,505
------------
1,213,889
Less accumulated depreciation and amortization (692,751)
------------
$ 521,138
============
Depreciation for fixed assets for the years ended June 30, 2005 and 2004 was
$312,925 and $XXXXX, respectively.
12
NOTE 6. LONG TERM OBLIGATIONS
2005
---------------
Note payable to a bank, bearing interest at 8.75% per annum; payable in monthly
installments of principal and interest of $2,197 through December 2005; secured
by accounts receivable
and any work in process. 25,192
Note payable to former owners of acquired businesses, bearing interest at 9% per
annum; payable in monthly installments of principal and interest of $12,984 and
increasing to $13,177 in August 2004, through May 2007;
secured by certain assets of the Company. 277,423
Notes payable to former owners of acquired businesses, bearing interest at 8%
per annum; payable in monthly installments of interest of $6,098 through
December 2003 and of principal and interest of $11,098 and increasing
periodically to $20,905 through May 2007, at which time the
remaining balance is due. 791,166
The company has a line of credit with the bank to borrow up to $537,900 with an
interest of base plus 3.5%, which is
reviewed annually. 558,542
Notes Payable to former owner of acquired business, bearing interest at 0% per
annum; payable in monthly installments of
principle of $12,551 through March, 2006 104,548
The company has various Capital lease obligations, with various interest rates;
secured by equipment; repaid over
time through December 2009 193,560
---------------
1,950,430
Less current maturities (1,071,968)
---------------
$ 878,462
===============
Future maturities of long-term obligations at June 30, 2005 are as follows:
Years Ending June 30,
2006 $ 1,071,968
2007 838,700
2008 36,000
2009 3,762
---------------
$ 1,950,430
===============
13
The Company has United States federal and state tax net operating loss
carryforwards available for future periods of approximately $2,852,751 at June
30, 2005. The bulk of these losses expire in 2025. As a result of the changes in
the ownership of the Company, as defined in Section 382 of the Internal Revenue
Code, there may be limitations on the amount of net operating loss carryforwards
that may be utilized in the future.
The provision for United State income taxes consists of the following for the
year ending June 30, 2005 is:
June 30, 2005
--------------------------------------------------------------------
USA Federal USA State UK Corporate Total
-------------- -------------- -------------- --------------
Current $ -- $ 2,500 $ 217,000 $ 219,500
Deferred -- -- -- --
-------------- -------------- -------------- --------------
Total $ -- $ 2,500 $ 217,000 $ 219,500
============== ============== ============== ==============
The tax effects of temporary differences and carryforwards that give rise to
significant portions of deferred tax assets consist of the following at June 30,
2005
June 30, 2005
-------------
Deferred tax assets:
Net operating loss carryforwards $ 1,222,041
Research and depreciation tax credits 266,000
Discontinued operations 208,791
Reserves and accruals 411,184
-------------
Total deferred tax assets 2,108,016
Deferred tax liabilities:
Depreciation and amortization (34,979)
-------------
Valuation Allowance (2,073,037)
Total net deferred tax assets $ 0
=============
The reasons for the difference between total tax expense and the amount computed
by applying the UK statutory income tax rates to income before income taxes at
June 30, 2005 are as follows
14
June 30, 2005
-------------
Taxes at statutory rates applied to income
before income taxes $ 313,000
Increase (reduction) in tax resulting from:
Non Deductible expenses 22,000
Add back depreciation 40,000
Capital allowances (34,500)
Research and development relief (26,000)
Disposal of fixed assets 1,000
Benefit of net operating loss carryforwards 0
Prior year adjustment 139,500
-------------
$ (96,000)
Income tax charge for the year $ 217,000
=============
The Company believes that uncertainty exists with respect to future realization
of the deferred tax assets and has established a valuation allowance for the
full amount as of June 30, 2005
NOTE 8. Stockholders Equity
The authorized capital stock of the Company consists of One Thousand Five
Hundred (1,500) shares of common stock, $0.001 par value, all of which shares
are or will be issued and outstanding at the time of closing. The company
initially had 27 shares outstanding during its formation. The company issued an
additional 634 shares for the acquisition of MAM Software Limited. The company
then issued 839 shares for the acquisition of CarParts Technologies, Inc.
NOTE 9. Commitments and Contingencies
Operating Leases
The Company leases its facilities and certain equipment pursuant to month to
month and non-cancelable operating lease agreements that expire on various dates
through February 2007. Terms of the leases provide for monthly payments ranging
from $350 to $11,000. For the years ended June 30, 2005 and 2004, the Company
incurred rent expense totaling approximately $642,999 and $366,045 respectively.
Future annual minimum payments under non-cancelable operating leases are as
follows:
Years Ending June 30,
2006 $ 284,862
2007 282,301
2008 130,874
2009 0
-------------
$ 698,037
=============
Indemnities and Guarantees
The Company has made certain indemnities and guarantees, under which it may be
required to make payments to a guaranteed or indemnified party, in relation to
certain actions or transactions. The Company indemnifies its directors,
officers, employees and agents, as permitted under the laws of the State of
Delaware. In connection with its facility leases, the Company has indemnified
its lessors for certain claims arising from the use of the facilities. In
connection with its customers contracts the company indemnifies the customer
that the software provided does not violate any US patent. The duration of the
guarantees and indemnities varies, and is generally tied to the life of the
agreement. These guarantees and indemnities do not provide for any limitation of
the maximum potential future payments the Company could be obligated to make.
Historically, the Company has not been obligated nor incurred any payments for
these obligations and, therefore, no liabilities have been recorded for these
indemnities and guarantees in the accompanying balance sheets.
15
NOTE 10. LITIGATION
From time to time, the Company is subject to various legal claims and
proceedings arising in the ordinary course of business. The ultimate disposition
of these proceedings could have a materially adverse effect on the financial
position or results of operations of the Company.
AFS Tire Management, Inc., formerly known as CarParts Technologies, Inc., has
been informed of a verdict against it in a litigation in the Court of Common
Please of Allegheny County, Pennsylvania, in favor of Aidan McKenna totaling
$3,555,277, which it intends to vigorously appeal. AFS Tire Management, Inc. has
made a provision of up to $1,650,000 in its accounts to cover the cost of any
verdict with respect to this litigation as of June 30, 2005, even though it
intends to vigorously appeal any judgment.
The claim in question relates to an asset purchase transaction. On November 13,
2002 Aidan J. McKenna ("McKenna") filed a complaint against CarParts
Technologies, Inc., now known as AFS Warehouse Distribution Management, Inc., in
the Court of Common Pleas of Allegheny County, Pennsylvania. The complaint
alleges that CarParts assumed a liability in excess of $2,053,000 for McKenna's
employment agreement with Open Webs Corporation when CarParts acquired the
assets of Open Webs. CarParts filed a claim for $1,000,000 for breach of
contract alleging that McKenna continued to conduct business in the Open Webs
Corporation in violation of the asset purchase agreement.
Homann Tire Ltd. filed a complaint against CarParts Technologies, Inc in
California District Court on August 11, 2005. The complaint seeks $271, 048 in
damages and alleges breach of contract, breach of warranty and intentional and
negligent misrepresentative. The Company maintains the complaint is without
merit.
Note 11. Related Party Transactions
AutoData Networks, Inc and Aftersoft Group, Inc. periodically provide capital
and services on behalf of the other. These items are moved through a liabilities
account on Aftersoft' Group, Inc.'s balance sheet. The timing and due date is
not specified on this balance.
NOTE 12. Subsequent Events
General
Auto Data Network has provided to Aftersoft $290,000 in capital between October
1, 2005 and December 7, 2005 to assist in the pay down of its vendors. This
advance has been added to the intercompany balance.
Auto Data Networks as part of the merger with W3 has agreed accept the
assignment all the issued shares of Mam North America Inc from Mam Software
Limited and to forgive $350,000 in intercompany debt on December 21, 2005.
On December 21, 2005, W3 Group, Inc. (the "Company") consummated an Acquisition
Agreement ("Agreement") to acquire all of the outstanding shares of common stock
of Aftersoft Group, Inc., a Delaware corporation ("Aftersoft") in exchange for
the issuance of 32,500,000 newly issued shares of the Company, par value $.0001
per share (the "Common Stock"), to Auto Data Network, Inc. (ADN), a Delaware
corporation and the sole shareholder of Aftersoft.
Aftersoft Group, Inc. Consolidated Financial Statements For Three Months ending
September 30, 2005 and 2004
16
Aftersoft Group, Inc. Balance Sheet
(In thousands)
As of 9/30/2005
(unaudited)
ASSETS
Current Assets
Cash $ 159
Accounts Receivable, net of reserve of $195,851 in 2005 3,682
Inventories 414
Notes Receivable 510
Other Current Assets 110
---------------
Total Current Assets 4,875
Property & Equipment, Net 468
Other Assets
Goodwill 19,761
Complete Technology, net 2,662
Customer Contracts / Relationships, net 3,244
Data Services, net 308
Backlog, net 0
Software Development capitalized costs, net 1,015
Other Long Term Assets 39
---------------
Net Other Assets 27,028
---------------
Total Assets $ 32,371
===============
LIABILITIES
Current Liabilities
Accounts payable $ 1,700
Accrued expenses 933
Accrued legal expenses 1,986
Current Portion of long term debt 1,091
Deferred Income 1,583
Taxes Payable 760
Other current liabilities 22
---------------
Total Current Liabilities 8,075
Long Term Liabilities
Deferred Income 904
Long Term Debt 765
Loan - ADN Inc 890
Discontinued Ops 487
---------------
Total Liabilities 11,121
STOCKHOLDERS' EQUITY
Preferred Stock 0
Common stock, Net 0
Additional Paid-in-Capital 20,937
Other Comp Inc/(Loss) (354)
Accumulated Income / (deficit) 667
---------------
Total Stockholders Equity 21,250
---------------
Total Liabilities & Stockholders' Equity $ 32,371
===============
The accompanying notes are an integral part of these financial statements.
17
Aftersoft Group, Inc. Statement of Operations
(In thousands)
For The Three Months Ended
------------------------
2005 2004
(unaudited) (unaudited)
---------- ----------
Revenues $ 4,779 $ 5,487
Cost of Revenues 2,439 2,209
---------- ----------
Gross Profit 2,340 3,278
Operating Expenses
Research and development 774 709
Sales and marketing 479 477
General and administrative 840 866
Depreciation and amortization 298 359
---------- ----------
Total Operating Expenses 2,391 2,411
Operating income / (loss), before Interest and Depreciation (51) 867
---------- ----------
Other income / (expense)
Investment income 0 0
Interest and other income 0 1
Interest expense (31) (18)
---------- ----------
Total other income / (expense) (31) (17)
Pretax income / (loss) (82) 850
Provision for income taxes 0 5
Goodwill written-off 0 0
---------- ----------
Net income / (loss) $ (82) $ 844
========== ==========
Earnings Per share attributed to common stock (54.97) 725.13
Average number of shares of common stock outstanding - basic 1,500 1,164
Earnings Per share attributed to common stock assuming dilution (54.97) 562.89
Average number of shares of common stock outstanding - fully diluted 1,500 1,500
The accompanying notes are an integral part of these financial statements.
18
Aftersoft Group, Inc. Consolidated Statement of Cashflows
(In thousands)
For three months Ending September 30,
------------------------
2005 2004
---------- ----------
Operating activities
Net Income $ (82) $ 844
Adjustments to Net Income
Depreciation and Amortization 272 359
Deferred income taxes 268 (117)
Gain on sale of assets 0 16
Other, net
Changes in assets and liabilities (net of the effect of acquisition):
Trade accounts receivable (145) 433
Inventories (56) 47
Prepaid expenses and other assets 768 (259)
Accounts payable (228) (918)
Deferred revenue (107) (1,565)
Accrued expenses and other liabilities 250 649
---------- ----------
Net cash provided by operating activities 939 (511)
Investing Activities
Cash acquired in acquisition 490
Purchase of property and equipment 0 (4)
Capitalized software development costs (111) (86)
---------- ----------
Net cash provided by (used in) investing activities (111) 400
Financing Activities
Proceeds from debt facility (758) 639
Payment on long-term debt (96) (223)
---------- ----------
Net cash provided by (used in) financing activities (854) 416
Effect of exchange rate changes (9) 1
---------- ----------
Net change in cash and cash equivalents (35) 306
Cash and cash equivalents, beginning of period 194 7
---------- ----------
Cash and cash equivalents, end of period $ 159 $ 313
========== ==========
Supplemental disclosures of cash flow information Cash paid during the period
for:
Interest $ 31 $ 18
Income taxes $ 0 $ 0
The accompanying notes are an integral part of these financial statements
19
AFTERSOFT GROUP, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THREE MONTHS ENDING SEPTEMBER 30, 2005
NOTE 1. Management's Representation
The financial statements included herein have been prepared by Aftersoft Group,
Inc. (the "Company"), without audit, pursuant to the rules and regulations of
the U.S. Securities and Exchange Commission. Certain information normally
included in the financial statements prepared in accordance with accounting
principles generally accepted in the United States of America has been omitted
pursuant to such rules and regulations. However, the Company believes that the
disclosures are adequate to make the information presented not misleading. In
the opinion of management, all adjustments (consisting primarily of normal
recurring accruals) considered necessary for a fair presentation have been
included.
Operating results for the three months ended September 30, 2005 are not
necessarily indicative of the results that may be expected for the year ending
June 30, 2006. It is suggested that the financial statements be read in
conjunction with the audited financial statements and notes thereto for the year
ended June 30, 2005.
NOTE 2. Nature of Business
Basis of Presentation
Aftersoft Group, Inc. is a wholly subsidiary of Auto Data Network, Inc.
Aftersoft Group is a leading provider of business and supply chain management
solutions primarily to automotive parts manufacturers, retailers, tire and
service chains, independent installers and wholesale distributors in the
automotive aftermarket. The Company conducts its businesses through subsidiaries
with operations in Europe and North America. MAM Software Limited is the leading
supplier of software to the automotive parts market in the U.K. MAM Software
consists of MAM Autopart Ltd, MAM AutoCat Ltd. and MAM Autowork Ltd., which are
all based in Sheffield, UK. Aftersoft Network North America, Inc. is comprised
of AFS Warehouse Distribution Management, Inc. and AFS Tire Management Inc.,
which are based in San Juan Capistrano, California and AFS Autoservice, Inc.,
which is based in Allentown PA. Aftersoft Network North America was formerly
known as CarParts Technologies Acquisition Corp. and AFS Tire Management was
formerly known as CarParts Technologies, Inc. Together these subsidiaries are
the second largest supplier of software to the automotive parts market in the
U.S.
The Company operates on a June 30 fiscal year end.
Principles of Consolidation
The consolidated financial statements of the Company include the accounts of the
Company and its wholly owned subsidiaries. All significant intercompany accounts
and transactions have been eliminated in the consolidated financial statements.
Goodwill and Other Intangible Assets
Goodwill represents the excess of cost over the fair value of assets acquired.
Goodwill is tested for impairment on an annual basis, and between annual tests
if indicators of potential impairment exist, using a fair-value-based approach.
No impairment of goodwill has been identified during any of the periods
presented.
20
Concentrations of Credit Risk
Cash
The Company maintains cash balances at financial institutions that are insured
by the Federal Deposit Insurance Corporation ("FDIC") up to $100,000. At
September 30, 2005, the Company had approximately $70,000 in these accounts in
excess of the FDIC insurance limits.
Customers
The Company performs periodic evaluations of its customers and maintains
allowances for potential credit losses as deemed necessary. The Company
generally does not require collateral to secure its accounts receivable. Credit
risk is managed by discontinuing sales to customers who are delinquent. The
Company estimates credit losses and returns based on management's evaluation of
historical experience and current industry trends. Although the Company expects
to collect amounts due, actual collections may differ from the estimated
amounts.
No customer accounted for more than 10% of the Company's revenues during the
quarter ending September 30, 2004, 2005.
Geographic Concentrations
The company does business in North America (consisting of the United States and
Canada) and the United Kingdom. The companies revenues are comprise of 33% from
North American operations and 67% from UK operations
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. Significant estimates made by the Company's
management include, but are not limited to, the collectibility of accounts
receivable, the recoverability of long-lived assets and valuation of deferred
tax assets. Actual results could materially differ from those estimates.
Fair Value of Financial Instruments
The Company's consolidated financial instruments consist of cash, accounts
receivable, related party notes payable, accounts payable and accrued expenses.
The carrying value of such instruments, approximate fair value as of June 30,
2005 due to short term maturities such as financial instruments. The difference
between the fair value and recorded values of the related party notes payable is
not significant.
Property and Equipment
Property and equipment are stated at cost, and are being depreciated using the
straight-line method over the estimated useful lives of the related assets,
ranging from three to five years. Leasehold improvements are amortized using the
straight-line method over the lesser of the estimated useful lives of the assets
or the related lease terms. Equipment under capital lease obligations is
depreciated over the shorter of the estimated useful lives of the related assets
or the term of the lease. Maintenance and routine repairs are charged to expense
as incurred. Significant renewals and betterments are capitalized. At the time
of retirement or other disposition of property and equipment, the cost and
accumulated depreciation are removed from the accounts and any resulting gain or
loss is reflected in the statement of operations.
Software Development Costs
Research and development costs, which consist of software development costs, are
expensed as incurred. Software development costs primarily include payments made
to employees and independent software developers under development agreements.
SFAS No. 86, Accounting for the Cost of Computer Software to be Sold, Leased, or
Otherwise Marketed, provides for the capitalization of certain software
development costs incurred after technological feasibility of the software is
established or for the development costs that have alternative future uses. The
Company believes that the technological feasibility of the underlying software
is not established until substantially all product development is complete,
which generally includes the development of a working model.
Goodwill
In accordance with Statement of Financial Accounting Standards No. 142, ("SFAS
142"), Goodwill and Other Intangible Assets, the Company ceased amortizing its
goodwill beginning in 2002. SFAS 142 addresses how intangible assets that are
acquired individually or with a group of other assets should be accounted for in
the financial statements upon their acquisition and after they have been
initially recognized in the financial statements. SFAS 142 requires that
goodwill and intangible assets that have indefinite useful lives not be
amortized but rather be tested at least annually for impairment, and intangible
assets that have finite useful lives be amortized over their useful lives. In
addition, SFAS 142 expands the disclosure requirements about goodwill and other
intangible assets in the years subsequent to their acquisition.
21
SFAS 142 provides specific guidance for testing goodwill and intangible assets
that will not be amortized for impairment. Goodwill will be subject to
impairment reviews by applying a fair-value-based test at the reporting unit
level, which generally represents operations one level below the segments
reported by the Company. An impairment loss will be recorded for any goodwill
that is determined to be impaired. The Company performs impairment testing on
all existing goodwill at least annually. Based on its analysis, the Company's
management believes that no impairment of the carrying value of its goodwill
existed at December 28, 2004. There can be no assurance however, that market
conditions will not change or demand for the Company's products and services
will continue which could result in impairment of goodwill in the future.
Long-Lived Assets
The Company's management assesses the recoverability of long-lived assets by
determining whether the depreciation and amortization of long-lived assets over
their remaining lives can be recovered through projected undiscounted future
cash flows. The amount of long-lived asset impairment, if any, is measured based
on fair value and is charged to operations in the period in which long-lived
asset impairment is determined by management. At June 30, 2005 the Company's
management believes there is no impairment of its long-lived assets. There can
be no assurance, however, that market conditions will not change or demand for
the Company's products and services will continue, which could result in
impairment of long-lived assets in the future.
Revenue Recognition
The Company recognizes revenue in accordance with the American Institute of
Certified Public Accountants Statement of Position ("SOP") 97-2, Software
Revenue Recognition, as amended by SOP 98-9, Modification of SOP 97-2, Software
Revenue Recognition, with Respect to Certain Transactions. Accordingly, software
license revenue is recognized when persuasive evidence of an arrangement exists,
delivery of the product component has occurred, the fee is fixed and
determinable, and collectibility is probable. If any of these criteria are not
met, revenue recognition is deferred until such time as all of the criteria are
met. In accordance with SOP 98-9, the Company accounts for delivered elements in
accordance with the residual method when arrangements include multiple product
components or other elements and vendor-specific objective evidence exists for
the value of all undelivered elements. Revenues on undelivered elements are
recognized once delivery is complete.
In those instances where arrangements include significant customization,
contractual milestones, acceptance criteria or other contingencies (which
represents the majority of the Company's arrangements), the Company accounts for
the arrangements using contract accounting, as follows:
1) When customer acceptance can be estimated, expenditures are capitalized as
work in process and deferred until completion of the contract at which time the
costs and revenues are recognized.
2) When customer acceptance cannot be estimated based on historical evidence,
costs are expensed as incurred and revenue is recognized at the completion of
the contract when customer acceptance is obtained.
The Company records amounts billed to customers in excess of recognizable
revenue as customer advances and deferred revenue in the accompanying
consolidated balance sheets.
Revenues for maintenance agreements are recognized ratably over the terms of the
service agreement.
Translation of Currency
Management has determined that the functional currency of its subsidiaries is
the local currency. Assets and Liabilities of the subsidiary are translated into
U.S. dollars at the year end exchange rates. Income and expenses are translated
at an average exchange rate for the period and the resulting translation loss
adjustments are accumulated as a separate component of stockholders' equity,
which totaled $3,932 and $17,932 at June 30, 2005 and 2004, respectively.
Foreign currency gains and losses from transactions denominated in other then
respective local currencies are included in income. There were no foreign
currency translation gains during the years ended June 30, 2005 and 2004.
Comprehensive Income
Comprehensive income includes all changes in equity (net assets) during a period
from non-owner sources. For the years ended June 30, 2005 and 2004, the
components of comprehensive income consist of foreign currency translation
losses.
22
Income Taxes
The Company accounts for income taxes under Statement of Financial Accounting
Standards No. 109 ("SFAS 109"), Accounting for Income Taxes. Under the asset and
liability method of SFAS 109, deferred tax assets and liabilities are recognized
for the future tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and liabilities and
their respective tax bases. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered or settled. Under
SFAS 109, the effect on deferred tax assets and liabilities of a change in tax
rates is recognized in income in the period the enactment occurs. Deferred
taxation is provided in full in respect of taxation deferred by timing
differences between the treatment of certain items for taxation and accounting
purposes. The deferred taxation has not been discounted.
Basic and Diluted Earnings Per Share
Basic earnings l per common share is computed based on the weighted average
number of shares outstanding for the period. Diluted earnings per share is
computed by dividing net income by the weighted average shares outstanding
assuming all potential dilutive common shares were issued. Basic and diluted
loss per share are the same for the periods presented as the impact under the
treasury stock method of dilutive stock options and would have had no effect in
shares outstanding for the years ended June 30, 2005 and 2004, respectively.
The following is a reconciliation of the numerator and denominators of the basic
and diluted loss per share computation for the years ending June 30:
2005 2004
------------ ------------
Numerator for basic and diluted income per share:
Net income available to common stockholders $ 2,056,080 $ 1,023,093
Denominator for basic and diluted income per common share:
Weighted average of common shares outstanding 1,417 661
------------ ------------
Net income per common share available to common
shareholders $ 1,450.75 $ 1,547.80
============ ============
Recent Accounting Pronouncements
In December 2004, the FASB issued SFAS No. 123 (revised 2004), Share-based
Payment (statement 123(R)") to provide investors and other users of financial
statements with more complete and neutral financial information by requiring
that the compensation cost relating to share-based payment transactions be
recognized in financial statements. The cost will be measured based on the fair
value of the equity or liability instrument used. Statement 123 (R) covers a
wide range of share based compensation arrangements including share options,
restricted share plans, performance based awards, share appreciation rights, and
employee share purchase plans. Statement 123(R) replaces SFAS No. 123 and
supercedes ABP 25. The company will be required to apply Statement 123(R) in
2006. The company is in the process of evaluating whether the adoption of
Statement 123(R) will have a significant impact on the Company's overall results
of operations or financial position.
In December 2004, the FASB issued SFAS No. 153, Exchange of Nonmonetary Assets -
and amendment to ABP Opinion No. 29, Accounting for Nonmonetary Transactions,
SFAS No. 153 eliminates the exception for non-monetary exchanges of similar
productive assets, which were previously required to be recorded on a carry over
basis rather then a fair value basis. Instead, this statement provides that
exchanges of non-monetary assets do not have a commercial substance be reported
at a carryover basis rather then a fair value basis. A non-monetary exchange is
considered to have commercial substance if the future cash flows of the entity
are expected to change significantly as a result of the exchange. The provisions
of this statement are effective for nonmonetary asset exchanges occurring in
fiscal periods beginning after June 15, 2005. The company does not expect the
adoption of SFAS No. 153 to have an impact on its financial condition or results
of operations.
23
In May 2005, the FASB issued SFAS No. 154, "Accounting Changes and Error
Corrections -- a replacement of APB Opinion No. 20 and FASB Statement No. 3."
This statement applies to all voluntary changes in accounting principle and
changes required by an accounting pronouncement where no specific transition
provisions are included. SFAS No. 154 requires retrospective application to
prior periods' financial statements of changes in accounting principle, unless
it is impracticable to determine either the period-specific effects or the
cumulative effect of the change. Retrospective application is limited to the
direct effects of the change; the indirect effects should be recognized in the
period of the change. This statement carries forward without change the guidance
contained in APB Opinion No. 20 for reporting the correction of an error in
previously issued financial statements and a change in accounting estimate.
However, SFAS No. 154 redefines restatement as the revising of previously issued
financial statements to reflect the correction of an error. The provisions of
SFAS No. 154 are effective for accounting changes and corrections of errors made
in fiscal periods that begin after December 15, 2005, although early adoption is
permitted. The Company does not anticipate that the implementation of this
standard will have a material impact on its condensed consolidated results of
operations, cash flows or financial position.
NOTE 3. Stockholders Equity
The authorized capital stock of the Company consists of One Thousand Five
Hundred (1,500) shares of common stock, $0.001 par value, all of which shares
are or will be issued and outstanding at the time of closing. The company
initially had 27 shares outstanding during its formation. The company issued an
additional 634 shares for the acquisition of MAM Software Limited. The company
then issued 839 shares for the acquisition of CarParts Technologies, Inc.
NOTE 4. Commitments and Contingencies
Legal Matters
From time to time, the Company is subject to various legal claims and
proceedings arising in the ordinary course of business. The ultimate disposition
of these proceedings could have a materially adverse effect on the financial
position or results of operations of the Company.
AFS Tire Management, Inc., formerly known as CarParts Technologies, Inc., has
been informed of a verdict against it in a litigation in the Court of Common
Please of Allegheny County, Pennsylvania, in favor of Aidan McKenna totaling
$3,555,277, which it intends to vigorously appeal. AFS Tire Management, Inc. has
made a provision of up to $1,650,000 in its accounts to cover the cost of any
verdict with respect to this litigation as of June 30, 2005, even though it
intends to vigorously appeal any judgment.
The claim in question relates to an asset purchase transaction. On November 13,
2002 Aidan J. McKenna ("McKenna") filed a complaint against CarParts
Technologies, Inc., now known as AFS Warehouse Distribution Management, Inc., in
the Court of Common Pleas of Allegheny County, Pennsylvania. The complaint
alleges that CarParts assumed a liability in excess of $2,053,000 for McKenna's
employment agreement with Open Webs Corporation when CarParts acquired the
assets of Open Webs. CarParts filed a claim for $1,000,000 for breach of
contract alleging that McKenna continued to conduct business in the Open Webs
Corporation in violation of the asset purchase agreement.
Homann Tire LTD Vs. CarParts Technologies filed a complaint against the Company
in California District Court on August 11, 2005 regarding the Company's
obligations pursuant to a software license agreement that it entered into with
Homann on October 18, 2002 (the "Agreement"). Homann alleges breach of contract,
breach of warranty and intentional and negligent misrepresentation. The Company
maintains the complaint is without merit.
Indemnities and Guarantees
The Company has made certain indemnities and guarantees, under which it may be
required to make payments to a guaranteed or indemnified party, in relation to
certain actions or transactions. The Company indemnifies its directors,
officers, employees and agents, as permitted under the laws of the State of
Delaware. In connection with its facility leases, the Company has indemnified
its lessors for certain claims arising from the use of the facilities. . In
connection with its customers contracts the company indemnifies the customer
that the software provided does not violate any US patent. The duration of the
guarantees and indemnities varies, and is generally tied to the life of the
agreement. These guarantees and indemnities do not provide for any limitation of
the maximum potential future payments the Company could be obligated to make.
Historically, the Company has not been obligated nor incurred any payments for
these obligations and, therefore, no liabilities have been recorded for these
indemnities and guarantees in the accompanying balance sheets.
24
Item 2.02 Results of Operations and Financial Condition.
On December 21, 2005, the Company announced an EBITDA of 14 cents per share and
earning of 9 cents per share (before one time exceptional items) for the fiscal
year ended June 30, 2005 for the combined entity.
Management's Financial Plan of Operation and Financial Statements for the
Company are included in Form 10-SB, which is specifically incorporated in its
entirety herein by reference and attached hereto as Exhibit 99.1. Please see
Exhibit 99.1 for a fuller description of Aftersoft and its businesses as a
result of the transaction.
25
Section 3 - Securities and Trading Market
Item 3.02 Unregistered Sales of Equity Securities.
Pursuant to the terms of the Agreement completed on December 21, 2005, the
Company issued 32,500,000 shares of Common Stock, par value $0.001, to ADN in a
non-public issuance exempt from the registration requirements of the Securities
Act of 1933, as amended, pursuant to Section 4(1), Section 4(6) and/or
Regulation D. The shares so issued are "restricted shares" and may not be
disposed of except in compliance with an applicable exemption from registration
under U.S. securities laws or pursuant to an effective registration statement
under U.S. securities laws.
Section 5- Corporate Governance and Management
Item 5.01 Changes in Control of Company.
Pursuant to the terms of the Agreement, effective December 21, 2005, three
additional directors were appointed to the Company's Board, making a total of
six directors in all. The executive officers of the Company were also replaced.
The names, positions and biographical information of the new management is set
forth in Exhibit 99.1, which is specifically incorporated herein by reference.
Also as a part of the Acquisition, the Registrant issued 32,500,000 shares of
its Common Stock to ADN, which holds 95.3% of the outstanding shares and
therefore has voting control of the Company.
Item 5.02 Departure of Directors or Principal Officers; Election of Directors;
Appointment of Principal Officers
As a part of the Acquisition, Robert Gordon and William C. Hayde resigned as the
officers of the Company, effective December 21, 2005. Mr. Gordon resigned as
President and Mr. Hayde resigned as Secretary. Mssrs. Gordon, Hayde and Messina
have also resigned as directors. The following three persons were appointed as
the principal executive, financial and operating officers as well as new
directors of the Company.
Name Positions
---- ---------
Ian Warwick Chief Executive Officer, President and Director
Mike Jamieson Chief Operating Officer and Director
Michael O'Driscoll Chief Financial Officer and Director
All officers and directors of the Registrant are as set forth in Exhibit 99.1
hereto, which is specially incorporated by reference.
The Company intends to form, but doesn't yet have standing audit, nominating and
compensation committees.
The Company intends to form those committees immediately.
26
Item 5.03 Amendments to Articles of Incorporation or Bylaws.
The Company amended its articles of incorporation on December 21, 2005, to
change its corporate name to Aftersoft Group, Inc. That amendment is filed
herewith as Exhibit 3 (i), and is specifically incorporated herein by reference.
Section 9 - Financial Statements and Exhibits.
Item 9.01 Financial Statements and Exhibits.
(a) Financial statements of businesses acquired.
The following financial statements are incorporated by reference to Exhibit 99.1
to the Current Report on Form 8-K:
Aftersoft Group Inc. Consolidated Financial Statements for fiscal years ended
June 30, 2005 and 2004
Aftersoft Group Inc. Consolidated Financial Statements for the three months
ended September 30, 2005 and 2004
Aftersoft Group Inc. Consolidated Financial Statements as of December 21, 2005
Aftersoft Group, Inc. Statement of Operations for period from July 1, 2005 to
December 21, 2005
(b) Pro forma financial information. W3 Group, Inc. and Aftersoft Group, Inc.
Unaudited pro forma balance sheet as of June 30, 2005 W3 Group, Inc. and
Aftersoft Group, Inc. Unaudited pro forma condensed combined balance sheet as of
September 30, 2005 W3 Group, Inc. and Aftersoft Group, Inc. Unaudited pro forma
consolidated statement of operations for three months ended September 30, 2005
(d) Exhibits.
The following exhibits are filed as part of this Report on Form 8-K:
Exhibit
Number Description
------------- -----------------------------------------------------------
Exhibit 3 (i) Certificate of Amendment to Certificate of Incorporation of W3
Group, Inc. :
Exhibit 99.1 Aftersoft Group, Inc. Form 10-SB
27
(b) Pro forma financial information
W3 Group, Inc. and Aftersoft Group, Inc. Unaudited Pro Forma Condensed Combined
Balance Sheet As of June 30, 2005
(In thousands, except loss per share)
Pro
W3 Group, Aftersoft Forma Pro
Inc. Group,Inc. Increase Forma
[Parent] [subsidiary] (decrease) Combined
--------------- --------------- --------------- ---------------
CONDENSED BALANCE SHEET
Current Assets $ -- $ 5,478 $ -- $ 5,478
Property & Equipment, Net -- 521 -- 521
Intangibles -- 27,260 [A] 27,260
Other Long Term Assets -- 36 -- 36
--------------- --------------- --------------- ---------------
Total Assets $ -- $ 33,295 $ -- $ 33,295
=============== =============== =============== ===============
LIABILITIES & EQUITY
Total Current Liabilities $ -- $ 7,421 $ 40 [B] $ 7,461
Total Liabilities -- 4,370 (98)[A] 4,272
Total Stockholders Equity -- 21,504 58 [B,E, 21,562
D,E]
--------------- --------------- --------------- ---------------
Total Liabilities & Equity $ -- $ 33,295 $ -- $ 33,295
=============== =============== =============== ===============
CONDENSED STATEMENT OF OPERATIONS
Revenues $ -- $ 22,062 $ -- $ 22,062
Operating costs & expenses -- (19,658) (40)[B,E] (19,698)
Interest and finance charges -- (117) 98 [D] (19)
Provision for income taxes* -- (231) (231)
--------------- --------------- --------------- ---------------
Net income / (loss) $ -- $ 2,056 $ 58 $ 2,114
=============== =============== =============== ===============
PER COMMON SHARE $ 0.06
===============
WEIGHTED AVERAGE SHARES OUTSTANDING $ 34,051
===============
NOTE 1 - PRO FORMA ADJUSTMENTS
On December 21, 2005, SUBSIDIARY was acquired by PARENT pursuant to an Agreement
signed on July 19, 2005. The agreement called for PARENT to issue 32,500,000
shares of common stock to the shareholders of SUBSIDIARY for 100% of the
outstanding shares of SUBSIDIARY. The ownership interests of the former owners
of SUBSIDIARY in the combined enterprise will be approximately 95.4% of the
ongoing shareholders of PARENT.
Pro forma adjustments above include the following:
[A] Allocate valuation of goodwill and other intangibles at date of acquisition.
[B] Add estimated regulatory compliance costs. [C] Issue 32,500,000 shares of
common stock and eliminate equity accounts of SUBSIDIARY. [D] Loan interest
payable to related party [E] Amortization of the valuation of certain intangible
assets at date of acquisition which do not effect future operations.
NOTE 2 - PRO FORMA PROFIT PER SHARE
Pro forma profit per share is computed based on the number of shares
outstanding, as though all Common Stock had been issued at the beginning of the
period.
28
W3 Group, Inc. and Aftersoft Group, Inc. Unaudited Pro Forma Condensed Combined
Balance Sheet As of September 30, 2005
(In thousands, except loss per share)
Pro
W3 Group, Aftersoft Forma Pro
Inc. Group,Inc. Increase Forma
[Parent] [subsidiary] (decrease) Combined
--------------- --------------- --------------- ---------------
CONDENSED BALANCE SHEET
Current Assets $ -- $ 5,656 $ -- $ 5,656
Property & Equipment, Net -- 468 -- 468
Intangibles -- 27,152 [A] 27,152
Other Long Term Assets -- 39 -- 39
--------------- --------------- --------------- ---------------
Total Assets $ -- $ 33,314 $ -- $ 33,314
LIABILITIES & EQUITY
Total Current Liabilities $ -- 7,624 $ 40 [B] $ 7,664
Total Liabilities -- 4,277 (98)[A] 4,179
Total Stockholders Equity -- 21,413 58 [B,E, 21,471
D,E]
--------------- --------------- --------------- ---------------
Total Liabilities & Equity $ -- 33,314 $ -- $ 33,314
=============== =============== =============== ===============
CONDENSED STATEMENT OF OPERATIONS
Revenues -- 4,779 $ -- $ 4,779
Operating costs & expenses -- (4,829) (40)[B,E] (4,869)
Interest and finance charges -- (31) 98 [D] 67
--------------- --------------- --------------- ---------------
Net income / (loss) -- (82) 58 (24)
=============== =============== =============== ===============
BASIC AND DILUTED NET PROFIT
PER COMMON SHARE $ 0.00
===============
WEIGHTED AVERAGE SHARES OUTSTANDING $ 34,051
===============
NOTE 1 - PRO FORMA ADJUSTMENTS
On December 21, 2005, SUBSIDIARY was acquired by PARENT pursuant to an Agreement
signed on July 19, 2005. The agreement called for PARENT to issue 32,500,000
shares of common stock to the shareholders of SUBSIDIARY for 100% of the
outstanding shares of SUBSIDIARY. The ownership interests of the former owners
of SUBSIDIARY in the combined enterprise will be approximately 95.4% of the
ongoing shareholders of PARENT.
Pro forma adjustments above include the following:
[A] Allocate valuation of goodwill and other intangibles at date of acquisition.
[B] Add estimated regulatory compliance costs.
[C] Issue 32,500,000 shares of common stock and eliminate equity accounts of
SUBSIDIARY.
[D] Loan interest payable to related party
[E] Amortization of the valuation of certain intangible assets at date of
acquisition which do not effect future operations.
NOTE 2 - PRO FORMA PROFIT PER SHARE
Pro forma profit per share is computed based on the number of shares
outstanding, as though all Common Stock had been issued at the beginning of the
period.
29
SIGNATURE
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.
WE AFTERSOFT GROUP, INC.[f/k/a W3 Group, Inc.]
By: /s/ Ian Warwick
------------------------------------------
Ian Warwick
Chief Executive and President
Date: March 10, 2006
30
The following financial statements are incorporated by reference to Exhibit 99.1
to the Current Report on Form 8-K:
Aftersoft Group, Inc. Consolidated Financial Statements for fiscal years ended
June 30, 2005 and 2004
Aftersoft Group, Inc. Consolidated Financial Statements for the three months
ended September 30, 2005 and 2004
Aftersoft Group, Inc. Consolidated Financial Statements as of December 21, 2005
Aftersoft Group, Inc. Statement of Operations for the period July 1, 2005 to
December 21, 2005
Exhibits Table
Exhibit
Number
-------
3(i) Certificate of Amendment to Certificate of Incorporation of W3 Group
16.1 Agreement to Item 4.02
99.1 Aftersoft Group, Inc. Form 10-SB
31