CLEAR CHOICE FINANCIAL, INC. UNAUDITED PRO FORMA FINANCIAL STATEMENT NOTES
Exhibit 99.2
UNAUDITED PRO FORMA FINANCIAL STATEMENT NOTES
Introduction
On May 31, 2006, Clear Choice Financial, Inc., (“CCF”) consummated the acquisition (the “Acquisition”) of Bay Capital Corp., (“Bay”). The stock purchase agreement, (“SPA”) was previously filed with our 10-QSB on February 10, 2006, whereby the original terms of the SPA outlined the purchase of all of Bay’s then outstanding stock. Amendments 1-4 to the SPA are attached as exhibits to this 8-K filing and should be read in conjunction with the original filed document.
The following unaudited pro forma consolidated condensed financial statements have been prepared based on the historical financial statements of CCF after giving effect to the acquisition Bay. The acquisition-purchase adjustment is being accounted from the perspective that CCF was the acquirer of Bay’s net assets in accordance with Statement of Financial Accounting Standards No. 141, “Business Combinations,” and Emerging Issues Task Force Issue 98-03, “Determining Whether a Nonmonetary Transaction Involves Receipt of Productive Assets of a Business.”
The unaudited pro forma consolidated condensed statement of operations for the year ended June 30, 2005 gives effect to the acquisition of Bay and the related acquisition-purchase adjustment as if it had occurred at the beginning of the year and has been derived from:
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the audited historical statement of operations of Bay Capital Corp. for the year ended December 31, 2004 and 2005; and |
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the audited historical statement of operations of Clear Choice Financial Inc. for the year ended June 30, 2005. |
Because these unaudited pro forma consolidated condensed financial statements have been prepared based on preliminary estimates of fair values attributable to the acquisition, the actual amounts recorded for the acquisition may differ from the information presented in these unaudited pro forma consolidated condensed financial statements. The total purchase price has been allocated on a preliminary basis to assets acquired and liabilities assumed based on management’s preliminary estimates of fair value. Management is still in the process of evaluating the assets acquired and liabilities assumed. The allocations made are subject to change pending a final analysis of the fair value of the assets acquired and liabilities assumed, which could result in material changes from the information presented. The pro forma consolidated condensed balance sheet does not purport to be indicative of the financial position that would have resulted had the transaction taken place on July 1, 2005.
The pro forma information presented is for illustrative purposes only and is not necessarily indicative of the operating results that would have been achieved if the acquisition had occurred at the beginning of the periods presented, nor is it indicative of future operating results. The unaudited pro forma consolidated condensed financial statements do not reflect any operating efficiencies and cost savings that we may achieve with respect to the consolidated companies. The pro forma information should be read in conjunction with the accompanying notes thereto, and in conjunction with the historical financial statements and accompanying notes of Clear Choice Financial, Inc. included in its annual reports on Form 10-KSB and quarterly reports on Form 10-QSB. The pro forma adjustments are based upon available information and certain assumptions that we believe are reasonable.
Purchase Price
The total estimated purchase price of the acquisition was $4,097,879.
Preliminary Purchase Price Allocation
The total purchase price has been allocated on a preliminary basis to assets acquired and liabilities assumed based on management’s preliminary estimates of fair value. Management is still in the process of evaluating the assets acquired and liabilities assumed. The allocations made are subject to change pending a final analysis of the fair value of the assets acquired and liabilities assumed, which could result in material changes from the information presented. This assessment is expected to be completed by September 30, 2006 and may result in fair values that are different than the preliminary estimates of these amounts. Adjustments to these estimates will be included in the allocation of the purchase price, if the adjustment is determined within the purchase price allocation period of up to twelve months.
The total estimated purchase price of $4,097,879 has been allocated as follows:
| Purchase Price | $ | 4,097,879 | ||
| Net liabilities assumed | $ | 1,238,298 | ||
| Goodwill | $ | 5,336,179 | ||
F-1
CLEAR CHOICE FINANCIAL, INC.
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE FISCAL YEAR ENDED JUNE 30, 2005
(UNAUDITED)
| Clear Choice Financial, Inc. |
Bay Capital
Corp. |
Pro Forma
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|---|---|---|---|---|---|---|---|---|---|---|---|
| Revenues | $ | 357,546 | $ | 23,287,173 | $ | 23,644,719 | |||||
| Cost of revenues | 249,726 | 2,838,578 | 3,088,304 | ||||||||
| Gross profit | 107,820 | 20,448,595 | 20,556,415 | ||||||||
| OPERATING EXPENSES | |||||||||||
| Sales and marketing | 795,508 | 954,560 | 1,750,068 | ||||||||
| General and administrative | 1,216,743 | 19,568,111 | 20,784,854 | ||||||||
| Total operating expenses | 2,012,251 | 20,522,671 | 22,534,922 | ||||||||
| OPERATING LOSS | (1,904,431 | ) | (74,076 | ) | (1,978,507 | ) | |||||
| NONOPERATING INCOME (EXPENSE) | |||||||||||
| Interest income | 15,171 | 1,982 | 17,153 | ||||||||
| Interest expense | (17,202 | ) | (56,178 | ) | (73,380 | ) | |||||
| Other expense | (16,750 | ) | (16,750 | ) | |||||||
| Xxxx on forgiveness of accrued interest | 4,945 | 4,945 | |||||||||
| Non-operating (expense) income, net | 2,914 | (70,946 | ) | (68,032 | ) | ||||||
| LOSS BEFORE BENEFIT FROM INCOME TAXES: | $ | (1,901,517 | ) | $ | (145,022 | ) | $ | (2,046,539 | ) | ||
| BENEFIT FROM INCOME TAXES: | |||||||||||
| Current | (61,889 | ) | — | (61,889 | ) | ||||||
| Deferred | — | — | — | ||||||||
| Benefit from income taxes | (61,889 | ) | — | (61,889 | ) | ||||||
| NET LOSS | $ | (1,963,406 | ) | $ | (145,022 | ) | $ | (2,108,428 | ) | ||
| Net loss per common share, basic and diluted | $ | (0.19 | ) | $ | (0.21 | ) | |||||
| Weighted
average number of common shares outstanding- basic and diluted |
10,131,520 | 10,131,520 | |||||||||
F-1
CLEAR CHOICE
FINANCIAL, INC.
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
AS OF MARCH 31, 2006
(UNAUDITED)
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| Clear
Choice Financial, Inc. |
Bay
Capital Corp. |
Pro
Forma Adjustments |
Pro Forma
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| ASSETS | ||||||||||||||||
| Current assets: | ||||||||||||||||
| Cash and cash equivalents | $ | 3,647,664 | $ | 771,116 | $ | (300,000 | ) | [A] | $ | 4,118,780 | ||||||
| Restricted cash | 200,000 | — | — | 200,000 | ||||||||||||
| Accounts receivable | — | 196,698 | — | 196,698 | ||||||||||||
| Notes receivable | 1,000,000 | — | (500,000 | ) | [B] | 500,000 | ||||||||||
| Mortgage receivable, net of allowance for loan loss of $541,918 | — | 31,243,012 | — | 31,243,012 | ||||||||||||
| Interest receivable | 22,389 | 75,596 | (2,975 | ) | [B] | 95,010 | ||||||||||
| Prepaid expenses | 555,116 | 113,049 | — | 668,165 | ||||||||||||
| Income tax receivable | 61,889 | — | — | 61,889 | ||||||||||||
| Total current assets | 5,487,058 | 32,399,471 | — | 37,083,554 | ||||||||||||
| Goodwill | 5,336,178 | — | — | 5,336,178 | ||||||||||||
| Deposits | 9,351 | 17,649 | — | 27,000 | ||||||||||||
| Property and equipment, net | 223,030 | 475,264 | — | 698,294 | ||||||||||||
| Other assets | 29,345 | — | — | 29,345 | ||||||||||||
| Total other assets | 5,597,904 | 492,913 | 6,090,817 | |||||||||||||
| Total assets | $ | 11,084,962 | $ | 32,892,384 | $ | 43,174,371 | ||||||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||||||||||
| Current Liabilities: | ||||||||||||||||
| Accounts payable | $ | 22,111 | $ | 504,736 | $ | — | $ | 526,847 | ||||||||
| Bank Line of Credit | 199,757 | — | — | 199,757 | ||||||||||||
| Accrued liabilities | 131,435 | 1,260,398 | — | 1,391,833 | ||||||||||||
| Warehouse line payable | — | 30,622,109 | — | 30,622,109 | ||||||||||||
| Interest payable | — | 173,520 | — | 173,520 | ||||||||||||
| Unearned Income | 13,742 | 101,831 | — | 115,573 | ||||||||||||
| Notes payable - current | 2,009,674 | 500,000 | (500,000 | ) | [B] | 2,009,674 | ||||||||||
| Notes payable officer - current | 3,051 | 300,000 | (300,000 | ) | [A] | 3,051 | ||||||||||
| Total current liabilities | 2,379,770 | 33,462,594 | — | 35,042,364 | ||||||||||||
| Long term notes payable - officer | 249,824 | 443,723 | — | 693,547 | ||||||||||||
| Total liabilities | 2,629,594 | 33,906,317 | — | 35,735,911 | ||||||||||||
| COMMITMENTS AND CONTINGENCIES | ||||||||||||||||
| STOCKHOLDERS’ EQUITY (DEFICIT) | ||||||||||||||||
| Preferred
stock, $.0001 par value; 10,000,000 shares authorized; none issued or outstanding |
— | — | — | — | ||||||||||||
| Common
stock, $.0001 par value; 60,000,000 shares authorized; 15,571,262 issued and outstanding |
1,557 | 450,000 | (450,000 | ) | [C] | 1,557.00 | ||||||||||
| Additional paid in capital | 11,960,051 | 220,227 | (220,227 | ) | [C] | 11,960,051 | ||||||||||
| Accumulated deficit | (3,506,240 | ) | (1,684,160 | ) | 667,252 | [C] | (4,523,148 | ) | ||||||||
| Total stockholders’ equity (deficit) | 8,455,368 | (1,013,933 | ) | 7,438,460 | ||||||||||||
| TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | $ | 11,084,962 | $ | 32,892,384 | $ | 43,174,371 | ||||||||||
F-1
CLEAR CHOICE
FINANCIAL, INC.
UNAUDITED PRO FORMA CONDENSED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED MARCH 31, 2006
| Clear
Choice Financial, Inc. |
Bay
Capital Corp. |
Pro
Forma Adjustments |
Pro Forma
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| Revenues | $ | 1303,774 | $ | 17,682,748 | $ | 17,986,522 | ||||||||||
| Cost of revenues | 120,806 | 1,516,142 | 1,636,948 | |||||||||||||
| Gross profit | 182,968 | 16,166,606 | 16,349,574 | |||||||||||||
| OPERATING EXPENSES | ||||||||||||||||
| Sales and marketing | 410,391 | 629,740 | 1,040,131 | |||||||||||||
| General and administrative | 1,289,687 | 16,774,627 | 18,064,314 | |||||||||||||
| Total operating expenses | 1,700,078 | 17,404,367 | 19,104,445 | |||||||||||||
| OPERATING LOSS | (1,517,110 | ) | (1,237,761 | ) | (2,754,871 | ) | ||||||||||
| NONOPERATING INCOME (EXPENSE) | ||||||||||||||||
| Interest income | 65,317 | 7,680 | (2,795 | ) | [A] | 70,202 | ||||||||||
| Interest expense | (140,538 | ) | (19,417 | ) | 2,795 | [A] | (157,160 | ) | ||||||||
| Other expense | 2,482 | 2,482 | ||||||||||||||
| Non-operating (expense) income, net | (75,221 | ) | (9,255 | ) | (84,476 | ) | ||||||||||
| NET LOSS | $ | (1,592,331 | ) | $ | (1,247,016 | ) | $ | (2,839,347 | ) | |||||||
| Net loss per common share, basic and diluted | $ | (0.10 | ) | $ | (0.18 | ) | ||||||||||
| Weighted
average number of common shares outstanding- basic and diluted |
16,171,262 | 16,171,262 | ||||||||||||||
ADJUSTMENTS TO THE CONDENSED CONSOLIDATED PRO FORMA UNAUDITED FINANCIAL STATEMENTS
The following pro forma adjustments are incorporated into the pro forma condensed consolidated balance sheet as of March 31, 2006 and the pro forma condensed consolidated statement of operations for the nine months ended March 31, 2006.
CONDENSED CONSOLIDATED BALANCE SHEET
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A) |
Eliminate note payable due to shareholder in which said note was satisfied the day before closing, in cash. |
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Eliminate the note due to Clear Choice Financial from Bay Capital Corp. and the corresponding accrued interest. |
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Eliminate equity and the prior retained earnings to reflect Pro Forma results.. |
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
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A) |
Eliminate interest income and expense on note payable from Bay Capital Corp. |
F-1
