SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 AMENDMENT NO. 1 TO FORM 8-K CURRENT REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 DATE OF REPORT: AUGUST 31, 2005 NUWAVE TECHNOLOGIES, INC. ------------------------- (EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER) DELAWARE 0-28606 22-3387630 -------- ------- ---------- (State or other jurisdiction (Commission (IRS Employer of incorporation) File Number) Identification No.) 109 NORTH POST OAK LANE, SUITE 422 HOUSTON, TEXAS 77024 ----------------------- ----- (Address of principal executive offices) (Zip code) Registrant's telephone number, including area code: (713) 621-2737 -------------- NOT APPLICABLE -------------- (Former Name or Former Address, If Changed Since Last Report) 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: |_| 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)) ITEM 1.01. ENTRY INTO A MATERIAL DEFINITIVE AGREEMENT. On August 31, 2005 NuWave Technologies, Inc. (the "Company") entered into a merger agreement (the "Agreement") with Strategies Acquisition Corp., a wholly-owned subsidiary of the Company ("SPV"), Corporate Strategies, Inc. ("Corporate Strategies") and the shareholders of Corporate Strategies listed on Exhibit A therein (collectively, the "Shareholders"), whereby SPV merged with and into Corporate Strategies, with Corporate Strategies remaining as the surviving corporation and continuing its corporate existence under the laws of the State of Delaware and as a wholly-owned subsidiary of the Company (the "Merger"). The separate existence of SPV has ceased. Pursuant to the terms of the Agreement, the Company issued one (1) share of its common stock ("Common Stock"), par value $0.001 per share, to each holder of Corporate Strategies Class A common stock in exchange for two (2) shares of Corporate Strategies Class A common stock, par value $0.001 per share. Second, the Company issued one (1) share of the Company's Series C preferred stock ("Series C Preferred"), par value $0.01 per share, to each holder of Corporate Strategies Series A preferred stock for one (1) share of Corporate Strategies Series A preferred stock, par value $0.001 per share. Third, the Company issued and delivered shares of its Series B convertible preferred stock ("Series B Preferred") to each holder of Corporate Strategies Class B common stock so that effectively upon conversion of the Series B Preferred into common shares, the common shares issued upon conversion shall be equal to ninety-five percent (95%) of the issued and outstanding stock of the Company (calculated on a fully diluted basis as of the date of the Merger, following the issuance of all the Merger Consideration (as such term is defined in the Agreement) and after giving effect to such conversion, but not including any shares of Common Stock issuable upon conversion of any then outstanding Company convertible debentures). Therefore, the Merger Consideration for the Common Stock, Series C Preferred and Series B Preferred was the Corporate Strategies Class A common, Series A preferred and Class B common, respectively. The number of shares issued to the Shareholders in connection with the Merger was based upon a determination by the Company's Board of Directors (the "Board") that the transaction was in the best interest of the Company and its shareholders. ITEM 3.02. UNREGISTERED SALES OF EQUITY SECURITIES. See Item 1.01 above. ITEM 5.02. DEPARTURE OF DIRECTORS OR PRINCIPAL OFFICERS; ELECTION OF DIRECTORS; APPOINTMENT OF PRINCIPAL OFFICERS. Pursuant to the Agreement (see Item 1.01 above), Mr. George D. Kanakis has resigned as the sole officer of the Company, effective August 31, 2005. Mr. Timothy J. Connolly and Mr. A.P. Shukis have replaced him as Chief Executive Officer and as Chief Financial Officer, respectively. Messrs. Kanakis and Gary H. Giannantonio have resigned as the Company's directors. Mr. Fred S. Zeidman has been appointed as the Company's new Chairman and Mr. Connolly has been appointed as the new Vice Chairman of the Board. These changes to the Board became effective on October 27, 2005, or ten (10) days following the Record Date as set forth in that certain Information Statement on Schedule 14-F/A, as filed with the U.S. Securities and Exchange Commission on October 17, 2005. ITEM 9.01. FINANCIAL STATEMENTS AND EXHIBITS. (a) Provided herewith. (b) Provided herewith. 2 (c) Exhibit No. Description: EXHIBIT DESCRIPTION ------------ ------------------------------------ Exhibit 99.1 Merger Agreement, dated August 31, Incorporated by reference to 2005, by and among NuWave Exhibit 99.1 to the Company's original Technologies, Inc., Strategies Current Report on Form 8-K as filed Acquisition Corp., Corporate with the U.S. Secretary and Exchange Strategies Inc. and the Shareholders Commission on September 8, 2005 listed therein 3 SIGNATURES 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. NUWAVE TECHNOLOGIES, INC. Date: November 14, 2005 By: /s/ Timothy J. Connolly ----------------------------- Name: Timothy J. Connolly Title: Chief Executive Officer 4 ITEM 9.01(A): CORPORATE STRATEGIES, INC. FINANCIAL STATEMENTS TABLE OF CONTENTS PAGE ---- AUDITED CONSOLIDATED FINANCIAL STATEMENTS: -------------------------------------------------------------------------------- Report of Independent Registered Public Accounting Firm F-2 Consolidated Balance Sheet as of December 31, 2004 F-3 Consolidated Statements of Operations For the Years Ended December 31, 2004 and 2003 F-4 Consolidated Statements of Changes in Shareholders' Equity For the Years Ended December 31, 2004 and 2003 F-5 Consolidated Statements of Cash Flows For the Years Ended December 31, 2004 and 2003 F-6 Notes to the Consolidated Financial Statements F-7 INTERIM UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS: -------------------------------------------------------------------------------- Unaudited Consolidated Balance Sheet as June 30, 2005 F-21 Unaudited Consolidated Statements of Operations For the Six Months Ended June 30, 2005 and June 30, 2004 F-22 Unaudited Consolidated Statements of Cash Flows For the Six Months Ended June 30, 2005 and June 30, 2004 F-23 Notes to the Unaudited Consolidated Financial Statements F-24 F-1 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FRIM To the Shareholders Corporate Strategies, Inc. and Subsidiaries Houston, Texas We have audited the accompanying consolidated balance sheet of Corporate Strategies, Inc. and Subsidiaries as of December 31, 2004 and the related statements of operations, shareholders' equity, and cash flows for the years ended December 31, 2004 and 2003. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the over-all financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects the financial position of Corporate Strategies, Inc. and Subsidiaries as of December 31, 2004, and the results of its operations and its cash flows for the years ended December 31, 2004 and 2003 in conformity with accounting principles generally accepted in the United States of America. Thomas Leger & Co., L.L.P. April 18, 2005 Houston, Texas F-2 CORPORATE STRATEGIES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET DECEMBER 31, 2004 ASSETS CURRENT ASSETS Cash and cash equivalents $ 391,143 Purchased accounts receivable 581,274 Other accounts receivable 72,403 Minimum lease payments receivable 129,468 Notes receivable 88,489 Investment in marketable securities 841,676 Deferred expenses 96,959 Prepaid expense 45,919 ----------- Total current assets 2,247,331 ----------- NONCURRENT ASSETS Minimum lease payments receivable 269,726 Deferred expenses 42,312 Investments 14,819 Intangible assets, net 33,367 Fixed assets, net 65,032 ----------- Total noncurrent assets 425,256 ----------- TOTAL ASSETS $ 2,672,587 =========== LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES Notes payable $ 163,346 Accounts payable 204,863 Accrued liabilities 76,458 Margin loans 392,891 Unearned income 70,499 Current tax liability 14,055 Deferred tax liability 90,523 Due to clients 21,461 ----------- Total current liabilities 1,034,096 ----------- NONCURRENT LIABILITIES Convertible debentures 1,300,000 Unearned income 68,620 Deferred tax liability 15,171 ----------- Total noncurrent liabilities 1,383,791 ----------- Minority interest -- ----------- COMMITMENTS AND CONTINGENCIES SHAREHOLDERS' EQUITY Preferred Stock, par value $.001, 1,000,000 shares authorized Series A Preferred stock; liquidation preference of $898,500 redeemable at $1,500 per share at Company option, cumulative dividends of $120.00 per share per year, non-voting, par value $.001, 1,000 shares authorized, 599 shares issued and outstanding 1 Common stock Class A, par value $.001, 145,000,000 shares authorized, 14,880,000 shares issued and outstanding 14,880 Class B, par value $.001, 55,000,000 shares authorized, 51,750,000 shares issued and outstanding 51,750 Additional paid-in capital 1,066,302 Retained deficit (878,233) ----------- Total shareholders' equity 254,700 ----------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 2,672,587 =========== The accompanying notes are an integral part of these consolidated financial statements. F-3 CORPORATE STRATEGIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 2004 AND 2003 2004 2003 ------------ ------------ REVENUE Commission income $ 1,158,589 $ 705,033 Discount income 185,226 284,263 Consulting revenue 153,270 3,540 Marketable securities gain 310,049 719,126 Other income 140,838 42,110 ------------ ------------ Total revenue 1,947,972 1,754,072 ------------ ------------ GENERAL AND ADMINISTRATIVE EXPENSES Salaries and benefits 450,313 359,624 Commission and loan processing 723,221 320,322 Advertising 164,732 311,899 Business development, travel and entertainment 100,855 86,476 Rent 62,426 20,360 Depreciation and amortization 32,329 22,124 Professional fees 319,855 108,193 Bad debt 388,000 154,828 Other 246,350 112,117 ------------ ------------ Total general and administrative expenses 2,488,081 1,495,943 ------------ ------------ OTHER (INCOME) EXPENSE Minority interest (16,230) 4,480 Interest expense 370,894 49,054 Interest income (36,433) (8,240) ------------ ------------ Total other expense 318,231 45,294 ------------ ------------ Income (loss) before income tax (858,340) 212,835 ------------ ------------ INCOME TAX PROVISION Current income tax expense 10,000 38,474 Deferred income tax expense 33,807 42,207 ------------ ------------ Total income tax provision (benefit) 43,807 80,681 ------------ ------------ NET INCOME (LOSS) (902,147) 132,154 ------------ ------------ Preferred dividends paid 72,086 80,278 ------------ ------------ INCOME (LOSS) APPLICABLE TO COMMON SHARES $ (974,233) $ 51,876 ------------ ------------ Basic and diluted income (loss) per share $ (0.02) $ 0.00 ============ ============ Basic and diluted average shares outstanding 57,736,557 45,000,000 ============ ============ F-4 CORPORATE STRATEGIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY YEARS ENDED DECEMBER 31, 2004 AND 2003 Preferred Stock Common Stock Additional Retained Total --------------------- ----------------------- Paid-in Earnings Shareholders' Shares Amount Shares Amount Capital (Deficit) Equity ------- ---------- ---------- ---------- ---------- ---------- ------------ Balance, December 31, 2002 766 $ 1 45,000,000 $ 45,000 $ 628,788 $ 44,124 $ 717,913 ------- ---------- ---------- ---------- ---------- ---------- ---------- Net income -- -- -- -- -- 132,154 132,154 Preferred dividends paid -- -- -- -- -- (80,278) (80,278) ------- ---------- ---------- ---------- ---------- ---------- ---------- Balance, December 31, 2003 766 1 45,000,000 45,000 628,788 96,000 769,789 ------- ---------- ---------- ---------- ---------- ---------- ---------- Redemption of preferred stock (167) -- -- -- (145,471) -- (145,471) Beneficial Conversion Feature -- -- -- -- 325,000 -- 325,000 Issuance of common stock -- -- 21,630,000 21,630 257,985 -- 279,615 Net loss -- -- -- -- -- (902,147) (902,147) Preferred dividends paid -- -- -- -- -- (72,086) (72,086) ------- ---------- ---------- ---------- ---------- ---------- ---------- Balance, December 31, 2004 599 $ 1 66,630,000 $ 66,630 $1,066,302 $ (878,233) $ 254,700 ======= ========== ========== ========== ========== ========== ========== F-5 CORPORATE STRATEGIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2004 AND 2003 2004 2003 ----------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES Net income (loss) $ (902,147) $ 132,154 Adjustment to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization 32,329 22,124 Amortization of deferred expenses 54,646 -- Bad debts 388,000 182,987 Impairment of investment -- 20,650 Minority interest (16,230) 4,480 Non cash interest expense 325,000 -- Non cash revenues (6,653) -- Non cash expense for redemption of preferred stock 75,529 -- Non cash deferred taxes 33,807 -- (Increase) decrease in assets: Purchased accounts receivable (262,001) 356,775 Other accounts receivable (87,903) (90,311) Notes receivable (80,913) 123,805 Deferred expenses (28,917) -- Prepaid and other (17,683) 15,095 Investment in marketable securities (684,693) (385,698) Increase (decrease) in liabilities: Accounts payable (51,363) 37,412 Accrued liabilities 31,064 19,702 Margin loans 392,891 -- Current tax liability (30,945) 87,207 Due to clients (62,996) (25,646) Deferred revenue -- (8,563) ----------- ----------- Net cash provided by (used in) operating activities (899,178) 492,173 ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES Purchases of fixed assets (78,392) (41,784) Purchase of minimum lease payments receivable (253,422) -- Purchase of debentures (86,285) -- Redemption (purchase) of investments 1,181 (16,000) ----------- ----------- Net cash used in investing activities (416,918) (57,784) ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from note payable 279,352 2,310,994 Principal payments on note payable (215,006) (2,370,994) Net proceeds from sale of convertible debentures 1,135,000 -- Net proceeds from issuance of common stock 270,000 -- Purchase of stock from minority interest (7,500) -- Proceeds from issuance of stock to minority interest 10,917 1,666 Preferred dividends paid (72,086) (80,278) ----------- ----------- Net cash provided by (used in) financing activities 1,400,677 (138,612) ----------- ----------- NET INCREASE IN CASH AND CASH EQUIVALENTS 84,581 295,777 CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 306,562 10,785 ----------- ----------- CASH AND CASH EQUIVALENTS, END OF YEAR $ 391,143 $ 306,562 =========== =========== SUPPLEMENTAL INFORMATION Interest paid $ 44,916 $ 55,187 Taxes paid 40,945 474 Redemption of preferred stock: Decrease in accounts receivable (221,000) -- Decrease in paid-in capital 145,471 -- Decrease in paid-in capital: For change in par value 10,300 -- For cost of registration statement and issuance of common stock 85,714 -- Increase in paid-in-capital Beneficial conversion feature 325,000 -- Increase in minority interest 17,584 6,146 Increase in deferred expenses 165,000 -- Marketable securities exchanged for debentures 248,715 -- Common stock issued for services 19,800 -- F-6 CORPORATE STRATEGIES, INC. NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31, 2004 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES NATURE OF OPERATIONS AND ORGANIZATION Corporate Strategies, Inc. (the "Company"), was organized on January 10, 1996 as a Texas limited liability company ("LLC") and began its current operations during 2001. Effective April 1, 2002, the Company incorporated in Delaware with the former members of the Texas limited liability company owning the same equity interest in the Company. As such, the financial statements of the Company are prepared as if the corporation was in existence from inception. The Company is a merchant bank, operating primarily in Texas, that purchases receivables with recourse, and provides strategic consulting and other fee-based corporate finance services, which may include direct investment in clients. Generally, the Company will realize gains or losses on these direct investments in accordance with market demands. On February 18, 2003, the Company formed Aim American Mortgage, Inc. ("Aim"), incorporated in Texas, for the purpose of engaging in mortgage brokerage activities. The Company owns 85% of Aim. Aim has a buy-sell agreement with the minority interest shareholders. The consolidated financial statements of the Company include the results of the operations of Aim for the period from February 18, 2003 (inception) to December 31, 2003. Aim has been engaged as a mortgage broker involved in the process of originating non-government insured loans in Texas. On April 23, 2004, Aim formed Aim American Home Loans, Inc. ("AAHL"), incorporated in Texas, for the purpose of engaging in mortgage brokerage activities in the sub-prime loan market. Aim owns 100% of AAHL. The consolidated financial statements of the Company include the results of the operations of AAHL for the period from April 23, 2004 (inception) to December 31, 2004. AAHL has been engaged as a mortgage broker involved in the process of brokering non-government insured loans in Texas. On October 22, 2004, the Company formed CSI Business Finance, Inc. ("CSIBF"), incorporated in Texas, for the purpose of engaging in equipment leasing activities. The consolidated financial statements of the Company include the results of operations of CSIBF for the period from October 22, 2004 (inception) to December 31, 2004. CSIBF finances equipment leases for companies, primarily in Texas. CSIBF is a wholly-owned subsidiary of the Company. CONSOLIDATION AND PRESENTATIONS The accompanying consolidated financial statements include the accounts of the Company and its subsidiaries. All significant intercompany balances and transactions have been eliminated. F-7 CORPORATE STRATEGIES, INC. NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31, 2004 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) REVENUE RECOGNITION AND FINANCE LEASE The Company's revenue recognition policies are in compliance with Staff Accounting Bulletin 104. Revenue is recognized at the date a formal arrangement exists, the price is fixed or determinable, the delivery is complete, no other significant obligation of the Company exists and collectibility is reasonably assured. Commission income from the brokering of loans is recognized when all of the services required to be performed for such revenues have been completed. Incremental direct costs include credit reports appraisal fees, document preparation fees, wire fees, filing fees, and commissions, are included in operating expenses, net of reimbursements. Discount income from purchased receivable represents a percentage of the purchase invoice. The discount percentage earned is determined by the number of days the invoice is outstanding. Consulting revenue is recognized as services are performed. Marketable securities gains (losses) is the change in market value of the trading securities owned by the Company in accordance with Financial Accounting Standard 115 "Accounting for Certain Investments in Debt and Equity Securities." Lease agreements, under which the Company recovers substantially all its investment from the minimum lease payments are accounted for as finance leases. At lease commencement, the Company records a minimum lease payment receivable and unearned lease income. The remaining unearned income is recognized as revenue over the term of receivables using the interest method. At December, 2004, a summary of the installments due on minimum lease payments receivable is as follows: 2005 $129,468 2006 129,468 2007 129,468 2008 10,790 -------- $399,194 ======== USE OF ESTIMATES The preparation of consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates. F-8 CORPORATE STRATEGIES, INC. NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31, 2004 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) CASH AND CASH EQUIVALENTS For purposes of the consolidated statement of cash flows, the Company considers all short-term securities purchased with a maturity date of three months or less to be cash equivalents. ACCOUNTS RECEIVABLE, OTHER Accounts receivable, other, at December 31, 2004, are primarily receivables of proceeds from the sale of certain leases and receivables for commissions earned or loans closed in December, 2004. All of these receivables were collected subsequent to year end. NOTES RECEIVABLE In September 2004, the Company converted a $46,400 receivable from a major customer for consulting fees into a note receivable for $50,000. The note is being paid through deductions from the customers weekly factoring of accounts receivable. The note balance at December 31, 2004 is $19,100. The note was fully paid subsequent to year end. On July 9, 2004, the Company entered into a promissory note with a customer for $61,000. The note accrues interest at 18% and was due October 31, 2004. On November 1, 2004 the parties executed an extension of the due date of the note to December 31, 2004 and the customer paid the interest due through November 1, 2004. On December 1, 2004 the Company verbally extended the due date to January 31, 2004. The note and accrued interest were paid in full on January 6, 2004. COLLECTIBILITY OF ACCOUNTS AND NOTES RECEIVABLE The accounts and notes receivable are reviewed monthly for aging and quarterly credit evaluation of the customer's financial condition to determine collectibility. write-offs or an increase in the allowance for doubtful accounts are made based on this evaluation. Based on the company's evaluation, no allowance for doubtful accounts is needed as of December 31, 2004. The purchased accounts receivable has a liability on the Company's financial statements called "Due to Clients." This liability includes an amount which represents the difference between the face amount of the invoices purchased and the amount paid by the Company for the invoice. This amount effectively serves as an additional allowance for doubtful accounts since it can be used to offset the customer's uncollected purchased account receivable balances. F-9 CORPORATE STRATEGIES, INC. NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31, 2004 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) FIXED ASSETS Fixed assets are stated at cost. Depreciation is computed using the straight-line method over estimated useful lives of three to five years. Leasehold improvements are amortized on a straight-line basis over the shorter of the useful life of the improvement or the term of the lease. When assets are retired or otherwise disposed of, the cost and related accumulated depreciation are removed from the accounts, and any resulting gain or loss is recognized in operations for the period. The cost of maintenance and repairs is charged to expense as incurred; significant renewals and betterments are capitalized. INCOME TAXES The Company accounts for income taxes under SFAS No. 109, "Accounting for Income Taxes," which requires an asset and liability approach to financial accounting and reporting for income taxes. The difference between the financial statement and tax basis of assets and liabilities is determined annually. Deferred income taxes assets and liabilities are computed for those differences that have future tax consequences using the currently enacted tax laws and rates that apply to the periods in which they are expected to affect taxable income. Valuation allowances are established, if necessary, to reduce the deferred tax asset to the amount that will assure full realization. Income tax expense is the current tax payable or refundable for the period plus or minus the net change in the deferred tax assets and liabilities. ADVERTISING Advertising costs are expensed as incurred. Advertising expense was $164,732 and $311,899 for the years ended December 31, 2004 and 2003, respectively. RECLASSIFICATIONS The accompanying consolidated financial statements for prior years contain certain reclassifications to conform with current year presentation. FAIR VALUE DISCLOSURE AT DECEMBER 31, 2004 The carrying value of cash, notes and accounts receivable, minimum lease payments receivable, accounts payable, margin loans, accrued liabilities and notes payable are reasonable estimates of their fair value because of short-term maturity. F-10 CORPORATE STRATEGIES, INC. NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31, 2004 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) NET LOSS PER SHARE Basic income (loss) per share is computed by dividing the net income (loss) available to common shareholders by the weighted average of common shares outstanding during the year. Diluted per share amounts assume the conversion, exercise, or issuance of all potential common stock instruments unless the effect is anti-dilutive, thereby reducing the loss or increasing the income per share. RECENT ACCOUNTING PRONOUNCEMENTS In December 2004, the Financial Accounting Standards Board, or FASB, issued Statement of Financial Accounting Standards No. 123R "Share-Based Payment" (SFAS 123R). This statement revises SFAS No. 123, supercedes APB No. 25, and requires companies to recognize the cost of employee stock options and other awards of stock-based compensation based on the fair value of the award as of the grant date. Currently, this type of compensation expense is not reflected in the Company's consolidated statements of operations. The effective date of this pronouncement is as of the beginning of the first interim or annual period that begins after December 31, 2005. The Company does not believe that the adoption of SFAS No. 123 will have a material impact on its consolidated financial position, results of operations or cash flows. In December 2004, the FASB published the following two final FASB Staff Positions, effective immediately. FAS 109-1, "Application of FASB Statement No. 109, Accounting for Income Taxes, to the Tax Deduction on Qualified Production Activities Provided by the American Jobs Creation Act of 2004," giving guidance on applying FASB Statement No. 109, Accounting for Income Taxes, to the tax deduction on qualified production activities provided by the American Jobs Creation Act of 2004. FAS 109-2 "Accounting and Disclosure Guidance for that Foreign Earnings Repatriation Provision within the American Jobs Creation Act of 2004" provides guidance on the Act's repatriation provision. The Company is in the process of reviewing the FAS 109-1 and FAS 109-2; however, at this time, the Company does not believe that the adoption of FAS 109-1 or FAS 109-2 will have a material impact on our consolidated financial position, results of operations or cash flows. In November 2004, the FASB Emerging Issues Task Force, or EITF, reached a consensus in applying the conditions in Paragraph 42 of SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets, in Determining Whether to Report Discontinued Operations" (EITF 03-13). Evaluation of whether operations and cash flows have been eliminated depends on whether (1) continuing operations and cash flows are expected to be generated, and (2) the cash flows, based on their nature and significance, are considered direct or indirect. This consensus should be applied to a component that is either disposed of or classified as held for sale in fiscal periods beginning after December 15, 2004. The Company does not believe the adoption of EITF 03-13 will have a material impact on our consolidated financial position, results of operations or cash flows. F-11 CORPORATE STRATEGIES, INC. NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31, 2004 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) In November 2004, the FASB issued SFAS No. 151, "Inventory Costs--An Amendment of ARB No. 43, Chapter 4" (SFAS No. 151). SFAS No. 151 amends the guidance in ARB No. 43, Chapter 4, "Inventory Pricing," to clarify the accounting for abnormal amounts of idle facility expense, freight, handling costs, and wasted material (spoilage). Among other provisions, the new rule requires that items such as idle facility expense, excessive spoilage, double freight, and re-handling costs be recognized as current-period charges regardless of whether they meet the criterion of "so abnormal" as stated in ARB No. 43. SFAS No. 151 is effective for fiscal years beginning after June 15, 2005 and is required to be adopted by us in the first quarter of fiscal 2006, beginning on January 1, 2006. The Company does not believe the adoption of SFAS No. 151 will have an impact on our consolidated financial position, results of operations and cash flows. 2. CONCENTRATIONS OF CREDIT RISK AND MAJOR CUSTOMERS Financial instruments, which potentially subject the Company to concentrations of credit risk consist principally of cash, accounts and notes receivable and marketable securities. The Company maintains its cash accounts in a high quality FDIC insured bank in Texas and in money market brokerage accounts. The Company's accounts receivables consist of purchased receivables, minimum lease payments receivable and receivables for consulting from companies located in the United States. The Company performs ongoing credit evaluations of its customers' financial conditions to ensure collections and minimize losses. The Company reduces its credit risk relating to marketable securities through diversification of marketable securities held. For the years ended December 31, 2004 and 2003, the Company had sales as a percent of annual revenues to the following customers: 2004 2003 ---- ---- Customer A 13% 8% Customer B 0% 8% No other customers accounted for more than 10% of revenue during the year. F-12 CORPORATE STRATEGIES, INC. NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31, 2004 2. CONCENTRATIONS OF CREDIT RISK AND MAJOR CUSTOMERS (CONTINUED) The Company is a minority shareholder (less than 1%) in Customer A. Total revenues and rent reimbursement from Customer A was as follows: 2004 2003 -------- -------- Consulting revenue $ 91,400 $ -- Revenue from purchased receivables 160,371 140,038 Rent reimbursement (Note 10) -- 28,400 -------- -------- Total $251,771 $168,438 ======== ======== 3. PURCHASED ACCOUNTS RECEIVABLE The Company purchases accounts receivable balances from clients and typically pays less than the face value of the balance at the time a receivable is purchased. Any amounts collected by the Company in excess of the amounts paid for the purchased accounts receivable less fees earned and required reserves are remitted to client. Such excess amounts may be applied to offset uncollected account balances. Any remaining excess amounts are recorded in the balance sheet as due to clients. 4. FIXED ASSETS Fixed assets consisted of the following at December 31, 2004: Computer equipment $ 69,707 Furniture and fixtures 45,153 Leasehold improvements 15,696 Other 5,000 -------- 135,556 Less accumulated depreciation 70,524 -------- Fixed assets, net $ 65,032 ======== Depreciation expense for the years ended December 31, 2004 and 2003 was $31,376 and $22,124, respectively. 5. INTANGIBLE ASSETS In November 2004, the Company purchased from an existing leasing company its client list and the residual value in certain leases for $57,500. The leases were sold in January 2005 for approximately $23,000 which was the value assigned to the leases at December 31, 2004. The remaining purchase price of $34,320 was assigned to the client list. This intangible asset is being amortized over its estimated useful life of three years. The amortization expense and reserve for amortization at December 31, 2004 is $953. Amortization for the years ended December 31, 2005, 2006 and 2007 will be $11,436, $11,436 and $10,495, respectively. F-13 CORPORATE STRATEGIES, INC. NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31, 2004 6. INVESTMENT IN MARKETABLE SECURITIES Investments in marketable securities primarily include shares of common stock in various companies. The investments are considered trading securities, and accordingly any changes in market value are reflected in the consolidated statement of operations. At December 31, 2004 and 2003, the Company had unrealized losses of $25,319 and $1,490, respectively, related to marketable securities held on those dates. These unrealized losses are included in the consolidated statements of operations for the respective years. 7. INVESTMENTS AND DEBENTURES Investments include shares of common stock in companies which do not have a readily determinable fair market value and are accounted for using the cost method. Once a quarter, the financial statements, operations and any other information needed to evaluate these investments are reviewed to determine if an impairment needs to be recorded. On October 14, 2004, the Company exchanged cash and common stock in a publicly traded company for a two (2) year $335,000 12% convertible debenture in another publicly traded company. The debenture was valued at the market value of the common stock exchanged. At December 31, 2004, the Company determined that the debenture was impaired and a reserve was established for $335,000. The Company has not accrued any interest on this debenture and has recorded the impairment in bad debt expense. 8. NOTES PAYABLE On November 20, 2002, the Company obtained an unsecured revolving line of credit of $100,000 at prime plus 2% with an open maturity date. At December 31, 2004, the prime rate was 5.25% and amount borrowed was $89,537. At December 31, 2004, all payments under the terms of the note were current. The Company has a $1,000,000 re-factoring facility with a bank which has an outstanding balance of $96,782 at December 31, 2004 and is secured by certain assets of the Company. The bank maintains a cash account in the Company's name representing the difference between invoices sold to the bank and the amount loaned by the bank on those invoices. The balance in this account at December 31, 2004 was $22,974. The Company has no authority over this account and the bank has the right to offset this amount against the re-factoring facility. As such, the Company records its obligation to the bank net of this account. The Company pays the lender 1% of the face value of invoices sold to the lender under this facility. In addition, the Company pays an additional 3/4% of 1% on invoices outstanding at the end of the month following the month of sale. The bank has the right to reassign to the Company any invoices not collected within ninety (90) days and look to the Company for any balances outstanding. The facility matured on March 13, 2005, was extended to April 30, 2005 and may be terminated before then by either party giving sixty (60) days written notice. This facility is guaranteed by two (2) shareholders of the Company. 9. CONVERTIBLE DEBENTURES On May 6, 2004, the Company entered into a Security Purchase Agreement with Cornell Capital Partners, LP ("Cornell") for the sale of $1,200,000 of 5% Secured Convertible Debentures. The debentures, along with unpaid interest are convertible, at the option of the holder, into Class A common stock at a conversion price equal to the lesser of 120% of the initial bid price of the common stock or 80% of the closing bid price as listed on a principal market. On the second anniversary date of issuance, the Company has the option of paying all the unpaid principal and accrued interest on the unconverted debentures or converting the debentures into common stock. The Company also has the right to redeem the debentures, in whole or part, at any time for 120% of the face amount of the debentures plus accrued interest. The debentures are secured by certain of the Company's assets. At closing $400,000 of the debentures were issued and funded. The second $400,000 was funded in September, 2004. The final $400,000 was funded in April, 2005. F-14 CORPORATE STRATEGIES, INC. NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31, 2004 9. CONVERTIBLE DEBENTURES (CONTINUED) On June 30, 2004, the Company terminated a standby Equity Distribution Agreement dated May 6, 2004 and entered into a new Standby Equity Distribution Agreement for the sale of up to $25,000,000 of the Company's Class A Common Stock. For a period of two years commencing after the effective date of a registration statement registering the resale of the common stock and for as long as the Registration Statement continues to be effective, the Company can request periodic purchases of up to $600,000 of the committed amount. The purchase price of the stock will be 98% of the volume weighted average price of the common stock for five consecutive trading days following the purchase request. The Company pays a fee of 5% of each requested purchase amount to Cornell. The Company also issued Cornell and others 3,780,000 shares of Class A Common Stock for services rendered pursuant to the agreements. On June 29, 2004, the Company entered into an agreement with iVoice, Inc. for the sale of $500,000 of 5% Secured Convertible Debentures. Proceeds were received and the debentures issued at the closing date. The redemption and convertibility terms are identical with the securities discussed in the first paragraph above. In accordance with EITF 98-5 "Accounting for Convertible Securities with Beneficial Conversion Features or Contingently Adjustable Conversion Ratios", the conversion feature on the above debentures which are convertible at date of issuance was accounted for as a beneficial conversion feature and is calculated at its intrinsic value at the commitment date. The proceeds from issuance of the convertible debt were reduced by the intrinsic value of $325,000 which is allocated to additional paid-in capital. Because the debt is convertible at the date of issuance, the debt discount is charged to interest expense at the date of issuance. 10. COMMITMENTS AND CONTINGENCIES LEASES The Company leases its office space under an operating lease which expires in March, 2006. Rental expense under this operating lease aggregated $62,426 and $51,466 for the years ended December 31, 2004 and 2003, respectively. The rent for 2003 was offset by rent reimbursement of $28,400 received from a client that was leasing space from the Company on a month-to-month basis. Effective February 10, 2005, the Company entered into a second five year lease in a separate building and moved the Company's headquarters there with AIM remaining in the previous space. Future minimum payments under non-cancelable operating leases with initial or remaining terms of one year or more consist of the following at December 31, 2004: F-15 CORPORATE STRATEGIES, INC. NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31, 2004 10. COMMITMENTS AND CONTINGENCIES (CONTINUED) Operating Leases -------- 2005 $120,765 2006 84,652 2007 73,591 2008 74,032 2009 74,032 2010 8,058 -------- Total Minimum Lease Payments $425,130 ======== In connection with the brokerage of loans, the Company is required to make customary representations and warranties regarding the Company and the loans. The Company may be subject to these representations and warranties for the life of the loans and they relate to, among other things: compliance with laws; regulations and underwriting standards; the accuracy of information in the loan documents and loan files; and the characteristics and enforceability of the loans. If the loan is closed before the Company detects non-compliance with these requirements, the Company may be obligated to indemnify the purchaser against that loss. The Company believes they have qualified personnel and have established controls to help ensure that all loans will be originated to the market's requirements; however, the Company cannot provide any assurance that the Company will succeed in doing so. The Company does not believe an allowance for defective loan losses is necessary at this time, however, an allowance will be provided when the Company determines one is necessary. 11. SHAREHOLDERS' EQUITY COMMON STOCK On May 4, 2004 the Company changed the par value of its common stock from $1.00 to $.001 per share and increased the number of authorized shares to 200,000,000 consisting of 145,000,000 shares of Class A common stock and 55,000,000 shares of Class B common stock. The terms and rights of Class A Common Stock are identical in all respects, except that (1) each share of Class A Common Stock shall be entitled to one vote on all matters, and (2) each share of Class B Common Stock shall be entitled to ten votes on all matters. Any share of Class B Common Stock that is sold in an open market transaction shall automatically convert upon such transfer into one share of Class A Common Stock. Any share of Class B Common Stock that is transferred by gift or in a private transaction (as opposed to an open market transaction) shall retain its status as a share of Class B Common Stock unless and until such share is transferred in an open market transaction. F-16 CORPORATE STRATEGIES, INC. NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31, 2004 11. SHAREHOLDERS' EQUITY (CONTINUED) Effective May 4, 2004, the Company effected a 45,000 to 1 stock split and in August 2004 effected a 3 to 1 stock split. All prior share amounts have been retroactively adjusted to reflect this change. On March 31, 2004, 6,750,000 shares of common stock were sold to an original shareholder for $150. On June 29, 2004, the Company entered into an agreement with iVoice, Inc. for the sale of 7,500,000 shares of the Company's Class A common stock for $250,000. During July and August 2004, the Company sold 3,000,000 shares of the Company's Class A common stock to ten (10) private investors for $100,000. In October 2004, the Company issued 600,000 shares of the Company's Class A common stock valued at $19,800 for services for the period October 1, 2004 through September 30, 2005. SERIES A PREFERRED STOCK On May 4, 2004, the Company increased the authorized to 1,000,000 shares of $.001 par value preferred stock. The Company has authorized 1,000 shares of Series A preferred stock of which 599 shares are outstanding. The Series A are entitled to a cumulative dividend of $120 per year, to a liquidation preference of $1,500 per share plus any accrued but unpaid dividends and is non-voting. In addition, at the option of the Company, each share can be redeemed at a price of $1,500 per share, plus any accrued and unpaid dividends. During 2004 and 2003, the Company paid preferred stock dividends in the amount of $72,083 and $80,278, respectively. The preferred stock shareholders are also common stock shareholders. 12. RELATED PARTY TRANSACTIONS EMPLOYEE NOTE RECEIVABLE On October 26, 2004, the Company entered into a promissory note receivable of $7,500 with an employee of the Company. On December 10, 2004, the Company entered into a promissory note receivable of $5,500 with the same employee. The notes accrue interest at 18% and are payable to the Company in full on January 31, 2005 and February 28, 2005, respectively. The note is secured by the commissions earned by the employee. At December 31, 2004 the amount of the notes receivable was $8,389. The notes were paid in full subsequent to year end. F-17 CORPORATE STRATEGIES, INC. NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31, 2004 12. RELATED PARTY TRANSACTIONS (CONTINUED) EMPLOYMENT CONTRACT On September 1, 2004, the Company entered into a five year employment agreement, effective June 1, 2004 with Tim Connolly, Chief Executive Officer and Chairman of the Board. The agreement has a renewal provision, provides for an annual salary and bonus upon attaining certain performance criteria set by the board of directors. The agreement also provides certain anti-dilution provisions in return for an extension of lock-up of the Chief Executive Officer's shares until December 31, 2007 and for certain other fringe benefits. 13. INCOME TAXES The following table sets forth a reconciliation of the statutory federal income tax for the year ended December 31, 2004 and 2003: 2004 2003 --------- --------- Income before taxes $(902,147) $ 212,835 ========= ========= Income tax computed at statutory rates $(306,730) $ 72,364 Permanent differences, nondeductible expenses 139,107 8,461 Increase in valuation allowance 113,900 -- Increase in deferred liability 13,807 -- Other 29,916 (144) --------- --------- Tax Liability $ (10,000) $ 80,681 ========= ========= The Company files a consolidated tax return with its subsidiaries. F-18 CORPORATE STRATEGIES, INC. NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31, 2004 13. INCOME TAXES (CONTINUED) DEFERRED INCOME TAXES The tax effects of the temporary differences between financial statement income and taxable income are recognized as a deferred tax asset and liability. Significant components of the deferred tax asset and liability as of December 31, 2004 is set out below: DEFERRED TAX ASSET Conversion to cash basis for tax reporting purposes $ 29,262 Impairment expense 113,900 Valuation allowance (113,900) --------- Deferred tax asset 29,262 DEFERRED TAX LIABILITY Fixed asset tax basis difference 15,171 Unrealized gain on security transaction 119,785 --------- Deferred tax liability 134,956 --------- Net deferred tax liability $ 105,694 ========= 14. SEGMENT REPORTING The Company has three segments: mortgage brokerage, through its 85% owned subsidiary, Aim American Mortgage, Inc., and subsidiary, which originates non-government insured loans in Texas, equipment leasing, through its wholly owned subsidiary, CSI Business Finance, Inc. and merchant banking. As a merchant banker, the Company purchases receivables with recourse, makes secured loans to small businesses, provides strategic consulting and other fee based corporate finance services, and makes investments which may include direct investments in clients. The Company evaluates segment performance and allocates resources based on several factors, of which revenue and income before federal income tax are the primary financial measures. The accounting policies of the reportable segments are the same as those described in the footnote entitled "Summary of Significant Accounting Policies" of the Notes to the Consolidated Financial Statements. F-19 CORPORATE STRATEGIES, INC. NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31, 2004 14. SEGMENT REPORTING (CONTINUED) The Company's operations are conducted in the United States. MORTGAGE EQUIPMENT MERCHANT BROKERAGE (1) LEASING (2) BANKING TOTAL ------------ ----------- ----------- ----------- Year ended December 31, 2003 Revenue $ 705,033 $ -- $ 1,049,039 $ 1,754,072 Interest expense/(income) (582) -- 41,396 40,814 Income before income tax 34,899 -- 177,936 212,835 Segment assets 591,242 -- 603,157 1,194,399 Additions to long-term assets 34,029 -- 7,755 41,784 Depreciation 6,161 -- 15,963 22,124 YEAR ENDED DECEMBER 31, 2004 Revenue $ 1,145,025 $ 6,653 $ 796,294 $ 1,947,972 Interest expense/(income) (8,654) -- 343,115 334,461 Income (Loss) before income tax (233,078) 2,875 (628,137) (858,340) Segment assets 412,855 338,223 1,921,509 2,672,587 Additions to long-term assets 34,391 34,320 9,681 78,392 Depreciation and Amortization 17,400 953 13,976 32,329 (1) Amounts presented for December 31, 2003 are for the period from February 18, 2003 (inception) to December 31, 2003. (2) Amounts presented for December 31, 2004 are for the period from October 22, 2004 (inception) to December 31, 2004 F-20 CORPORATE STRATEGIES, INC. AND SUBSIDIARIES UNAUDITED CONSOLIDATED BALANCE SHEET JUNE 30, 2005 ASSETS CURRENT ASSETS Cash and cash equivalents $ 656,024 Purchased accounts receivable 23,560 Accounts receivable-shareholder 55,112 Other accounts receivable 65,850 Minimum lease payments receivable 152,854 Notes receivable 157,000 Investment in marketable securities 583,303 Deferred expenses 130,907 Prepaid expense 119,635 ----------- Total current assets 1,944,245 ----------- NONCURRENT ASSETS Minimum lease payments receivable 215,783 Deferred expenses 29,375 Investments 14,819 Intangible assets, net 27,647 Fixed assets, net 135,873 ----------- Total noncurrent assets 423,497 ----------- TOTAL ASSETS $ 2,367,742 =========== LIABILITIES AND SHAREHOLDERS' DEFICIT CURRENT LIABILITIES Notes payable $ 89,537 Accounts payable 205,555 Accrued liabilities 112,574 Unearned income 65,783 Current tax liability 14,055 Deferred tax liability 137,264 Due to clients 59,920 ----------- Total current liabilities 684,688 ----------- NONCURRENT LIABILITIES Convertible debentures 1,700,000 Unearned income 41,005 Deferred tax liability 29,637 ----------- Total noncurrent liabilities 1,770,642 ----------- Minority interest -- ----------- COMMITMENTS AND CONTINGENCIES SHAREHOLDERS' DEFICIT Preferred Stock, par value $.001, 1,000,000 shares authorized Series A Preferred stock; liquidation preference of $855,000 redeemable at $1,500 per share at Company option, cumulative dividends of $120.00 per share per year, non-voting, par value $.001, 1,000 shares authorized, 570 shares issued and outstanding 1 Common stock Class A, par value $.001, 145,000,000 shares authorized, 39,880,000 shares issued and outstanding 39,880 Class B, par value $.001, 55,000,000 shares authorized, 43,416,667 shares issued and outstanding 43,417 Additional paid-in capital 1,124,298 Retained deficit (1,295,184) ----------- Total shareholders' deficit (87,588) ----------- TOTAL LIABILITIES AND SHAREHOLDERS' DEFICIT $ 2,367,742 =========== F-21 CORPORATE STRATEGIES, INC. AND SUBSIDIARIES UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 2005 AND 2004 2005 2004 ------------ ------------ REVENUE Commission income $ 599,269 $ 584,058 Discount income 98,608 72,623 Consulting revenue 117,000 -- Marketable securities gain 194,564 62,718 Other income 89,159 64,270 ------------ ------------ Total revenue 1,098,600 783,669 ------------ ------------ GENERAL AND ADMINISTRATIVE EXPENSES Salaries and benefits 360,165 261,876 Commission and loan processing 374,539 305,704 Advertising 89,537 73,172 Business development, travel and entertainment 82,044 33,406 Rent 66,490 30,628 Depreciation and amortization 27,642 15,144 Professional fees 172,710 97,996 Other 161,890 116,672 ------------ ------------ Total general and administrative expenses 1,335,017 934,598 ------------ ------------ OTHER (INCOME) EXPENSE Minority interest (750) (17,308) Interest expense 142,067 12,124 Other income (46,517) -- Interest income (5,533) (4,040) ------------ ------------ Total other (income) expense 89,267 (9,224) ------------ ------------ Loss before income tax (325,684) (141,705) ------------ ------------ INCOME TAX PROVISION Current income tax expense (benefit) -- -- Deferred income tax expense (benefit) 61,207 (35,229) ------------ ------------ Total income tax provision (benefit) 61,207 (35,229) ------------ ------------ NET LOSS (386,891) (106,476) Preferred dividends paid 30,060 38,306 ------------ ------------ LOSS APPLICABLE TO COMMON SHARES $ (416,951) $ (144,782) ============ ============ Basic and diluted loss per share $ (0.01) $ (0.00) ============ ============ Basic and diluted average shares outstanding 66,630,000 49,438,516 ============ ============ F-22 CORPORATE STRATEGIES, INC. AND SUBSIDIARIES UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE SIX MONTHS ENDED JUNE 30, 2005 AND 2004 2005 2004 ----------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES Net loss $ (386,891) $ (106,476) Adjustment to reconcile net loss to net cash provided by (used in) operating activities: Depreciation and amortization 27,642 15,144 Amortization of deferred expenses 56,604 -- Minority interest -- (17,308) Non-cash interest expense 100,000 -- Non-cash expense for redemption of preferred stock 18,163 -- Non-cash deferred taxes 61,207 -- (Increase) decrease in assets: Purchased accounts receivable 557,714 (19,252) Other accounts receivable 6,553 (115,715) Accounts receivable-shareholder (55,112) 37,500 Minimum lease payments receivable 64,573 -- Notes receivable (69,261) (19,464) Deferred expenses (12,615) -- Prepaid and other (73,716) (36,125) Investment in marketable securities 258,373 216,621 Deferred expenses -- (28,085) Increase (decrease) in liabilities: Accounts payable (42,808) 43,634 Accrued liabilities 36,116 (37,499) Margin loans (392,891) -- Current tax liability -- (35,229) Due to clients 38,459 (33,979) Unearned income (41,310) -- ----------- ----------- Net cash provided by (used in) operating activities 150,800 (136,233) ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES Purchases of fixed assets (92,763) (18,730) Purchase of minimum lease payments receivable (25,037) -- ----------- ----------- Net cash used in investing activities (117,800) (18,730) ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES Principal payments on note payable (73,809) -- Net proceeds from sale of convertible debentures 335,000 775,000 Net proceeds from issuance of common stock -- 170,150 Proceeds from issuance of stock to minority interest 750 -- Preferred dividends paid (30,060) (38,306) ----------- ----------- Net cash provided by financing activities 231,881 906,844 ----------- ----------- NET INCREASE IN CASH AND CASH EQUIVALENTS 264,881 751,881 CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 391,143 306,562 ----------- ----------- CASH AND CASH EQUIVALENTS, END OF PERIOD $ 656,024 $ 1,058,443 =========== =========== SUPPLEMENTAL INFORMATION Interest paid $ 5,977 $ 8,791 Taxes paid -- 30,000 Redemption of preferred stock: Decrease in accounts receivable (43,500) (50,238) Increase in accounts payable -- (65,530) Decrease in paid-in capital 25,337 115,766 Increase in additional paid-in capital Beneficial conversion feature 100,000 -- Increase in deferred expenses 65,000 125,000 Increase in minority interest -- 11,262 Costs of registration statement charged to additional paid-in capital -- 90,335 Increase in additional paid-in capital for cost of registration statement withheld by investor -- 80,000 Increase in common stock and reduction of additional paid-in capital for stock split and change in par value -- 7,860 F-23 CORPORATE STRATEGIES, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS JUNE 30, 2005 NOTE 1 - BASIS OF PRESENTATION The accompanying unaudited consolidated financial statements of Corporate Strategies, Inc. have been prepared in accordance with the accounting principles generally accepted in the United States of America for interim financial reporting. They do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. In the opinion of management, all adjustments, consisting only of normal recurring adjustments, considered necessary for a fair presentation, have been included in the accompanying unaudited financial statements. Operating results for the periods presented are not necessarily indicative of the results that may be expected for the full year. These financial statements should be read in conjunction with the audited financial statements and footnotes for the year ended December 31, 2004 which are included in this Form 8-K/A. NOTE 2 - SUBSEQUENT EVENTS On August 25, 2005, Corporate Strategies, Inc. merged CSI Business Finance (a wholly owned subsidiary of Corporate Strategies) and Health Express USA, Inc., a public company currently trading on the OTC Bulletin Board. As a result of the share exchange agreement, Corporate Strategies, Inc. exchanged its common shares of CSI Business Finance, Inc. for 100,000 restricted shares of Series A Convertible Preferred stock of Health Express. Corporate Strategies has chosen to spin off the preferred stock shares acquired in this transaction to its shareholders in the form of a dividend. The effect of the spin-off of CSI Business Finance, Inc. on the Unaudited Consolidated Financial Statements at June 30, 2005 would be as follows: Corporate Strategies, Corporate Inc. Strategies, Consolidated Inc. CSI Business After Spin- Consolidated Finance, Inc. Off (Unaudited) (Unaudited) (Unaudited) ------------ ------------ ------------ Balance Sheet Total current assets $ 1,944,245 $ 72,843 1,871,402 Total non-current assets 423,497 244,263 179,234 ------------ ------------ ------------ Total assets $ 2,367,742 $ 317,106 $ 2,050,636 ============ ============ ============ Total current liabilities $ 684,688 $ 71,100 $ 613,588 Total non-current liabilities 1,770,642 41,005 1,729,637 ------------ ------------ ------------ Total liabilities 2,455,330 112,105 2,343,225 Total shareholders' equity (87,588) 205,001 (292,589) ------------ ------------ ------------ Total liabilities and shareholders' equity $ 2,367,742 $ 317,106 $ 2,050,636 ============ ============ ============ F-24 CORPORATE STRATEGIES, INC. NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 2005 NOTE 2 - SUBSEQUENT EVENTS (continued) Corporate Strategies, Corporate Inc. Strategies, Consolidated Inc. CSI Business After Spin- Consolidated Finance, Inc. Off (Unaudited) (Unaudited) (Unaudited) ------------ ------------ ------------ Statement of Operations Total Revenues $ 1,098,600 $ 88,424 $ 1,010,176 Total operating expenses 1,335,017 66,517 1,268,500 Total other expense 89,267 -- 89,267 ------------ ------------ ------------ Income (loss) before taxes (325,684) 21,907 (347,591) Total income tax expense 61,207 4,010 57,197 ------------ ------------ ------------ Net income (loss) (386,891) 17,897 (404,788) Dividends paid 30,060 12,000 18,060 ------------ ------------ ------------ Income (loss) applicable to common shares $ (416,951) $ 5,897 $ (422,848) ============ =========== ============ F-25 ITEM 9.01(B): CORPORATE STRATEGIES, INC. PRO FORMA FINANCIAL STATEMENTS TABLE OF CONTENTS PAGE ---- Pro Forma Financial Statements: Unaudited Consolidated Pro Forma Balance Sheet as June 30, 2005 F-28 Unaudited Consolidated Pro Forma Statement of Operations For the Six Months Ended June 30, 2005 F-29 Unaudited Consolidated Pro Forma Statement of Operations For the Year Ended December 31, 2004 F-30 F-26 CORPORATE STRATEGIES, INC. UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS DESCRIPTION OF MERGER AND RELATED EVENTS On August 31, 2005 NuWave Technologies, Inc. (the "Company") entered into a merger agreement (the "Agreement") with Strategies Acquisition Corp., a wholly-owned subsidiary of the Company ("SPV"), Corporate Strategies, Inc. ("Corporate Strategies") and the shareholders of Corporate Strategies (collectively, the "Shareholders"), whereby SPV merged with and into Corporate Strategies, with Corporate Strategies remaining as the surviving corporation and continuing its corporate existence under the laws of the State of Delaware and as a wholly-owned subsidiary of the Company (the "Merger"). The separate existence of SPV has ceased. Pursuant to the terms of the Agreement, the Company issued one (1) share of its common stock ("Common Stock"), par value $0.001 per share, to each holder of Corporate Strategies Class A common stock in exchange for two (2) shares of Corporate Strategies Class A common stock, par value $0.001 per share. Second, the Company issued one (1) share of the Company's Series C preferred stock ("Series C Preferred"), par value $0.01 per share, to each holder of Corporate Strategies Series A preferred stock for one (1) share of Corporate Strategies Series A preferred stock, par value $0.001 per share. Third, the Company issued and delivered shares of its Series B convertible preferred stock ("Series B Preferred") to each holder of Corporate Strategies Class B common stock so that effectively upon conversion of the Series B Preferred into common shares, the common shares issued upon conversion shall be equal to ninety-five percent (95%) of the issued and outstanding stock of the Company (calculated on a fully diluted basis as of the date of the Merger, following the issuance of all the Merger Consideration (as such term is defined in the Agreement) and after giving effect to such conversion, but not including any shares of Common Stock issuable upon conversion of any then outstanding Company convertible debentures). Therefore, the Merger Consideration for the Common Stock, Series C Preferred and Series B Preferred was the Corporate Strategies Class A common, Series A preferred and Class B common, respectively. The number of shares issued to the Shareholders in connection with the Merger was based upon a determination by the Company's Board of Directors (the "Board") that the transaction was in the best interest of the Company and its shareholders. The unaudited pro forma consolidated balance sheet is presented as if the exchange had taken place on June 30, 2005. The unaudited pro forma consolidated statement of operations for the year ended December 31, 2004 and the six months ended June 30, 2005 are presented as if the exchange had taken place at the beginning of each reporting period. The unaudited pro forma consolidated financial statements are provided for information purposes only and do not purport to represent what the consolidated financial position and results of operations would have been had the merger, in fact, occurred on the dates indicated. The unaudited pro forma consolidated financial statements are presented for illustrative purposes only. The pro forma adjustments are based upon available information and assumptions that management believes are reasonable. The accompanying consolidated financial statements of Corporate Strategies presented in this report should be read in conjunction with Corporate Strategies' audited consolidated financial statements and footnotes for the year ended December 31, 2004 which are included in this Form-8K/A. Also included are Corporate Strategies' unaudited consolidated financial statements for the six months ended June 30, 2005. The accompanying consolidated financial statements of the NuWave Technologies, Inc. should be read in conjunction with the historical financial statements of the NuWave Technologies, Inc. included in it's Form 10-KSB for the year ended December 31, 2004 and it's Form 10-QSB for the six months ended June 30, 2005. This transaction is being accounted for as a reverse acquisition since the control of the Company has passed to the stockholders of the acquired company. F-27 CORPORATE STRATEGIES, INC. UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET JUNE 30, 2005 Corporate NuWave Strategies, Technologies, Inc. Inc. Adjustments Pro Forma ------------ ------------ ------------ ------------ ASSETS CURRENT ASSETS Cash and cash equivalents $ 656,024 $ 9,000 $ -- $ 665,024 Purchased accounts receivable 23,560 -- -- 23,560 Other accounts receivable--shareholder 55,112 -- -- 55,112 Other accounts receivable 65,850 -- -- 65,850 Minimum lease payments receivable 152,854 -- -- 152,854 Notes receivable 157,000 -- -- 157,000 Investment in marketable securities 583,303 85,000 -- 668,303 Deferred expenses 130,907 -- -- 130,907 Prepaid expenses 119,635 23,000 -- 142,635 ------------ ------------ ------------ ------------ Total current assets 1,944,245 117,000 -- 2,061,245 ------------ ------------ ------------ ------------ NONCURRENT ASSETS Minimum lease payments receivable 215,783 -- -- 215,783 Deferred expenses 29,375 -- -- 29,375 Investments 14,819 -- -- 14,819 Intangible assets, net 27,647 -- -- 27,647 Fixed assets, net 135,873 17,000 -- 152,873 Land held for development and sale -- 2,884,000 -- 2,884,000 ------------ ------------ ------------ ------------ Total noncurrent assets 423,497 2,901,000 -- 3,324,497 ------------ ------------ ------------ ------------ TOTAL ASSETS $ 2,367,742 3,018,000 -- 5,385,742 ============ ============ ============ ============ LIABILITIES AND SHAREHOLDERS' (DEFICIT) CURRENT LIABILITIES Notes payable $ 89,537 $ -- $ -- $ 89,537 Accounts payable 205,555 166,000 -- 371,555 Accrued liabilities 112,574 -- -- 112,574 Unearned income 65,783 -- -- 65,783 Current tax liability 14,055 -- -- 14,055 Deferred tax liability 137,264 -- -- 137,264 Due to clients 59,920 -- -- 59,920 Current portion of convertible debentures -- 355,000 -- 355,000 Current portion of convertible debentures--related party -- 250,000 -- 250,000 Current portion of note payable--related party -- 176,000 -- 176,000 ------------ ------------ ------------ ------------ Total current liabilities 684,688 947,000 -- 1,631,688 ------------ ------------ ------------ ------------ NONCURRENT LIABILITIES Note payable--related party -- 3,481,000 -- 3,481,000 Note payable--related party, net of current portion -- 1,224,000 -- 1,224,000 Convertible debenture 1,700,000 84,000 -- 1,784,000 Accrued interest--non-current -- 183,000 -- 183,000 Unearned income 41,005 -- -- 41,005 Deferred tax liability 29,637 -- -- 29,637 ------------ ------------ ------------ ------------ Total noncurrent liabilities 1,770,642 4,972,000 -- 6,742,642 ------------ ------------ ------------ ------------ COMMITMENTS AND CONTINGENCIES SHAREHOLDERS' (DEFICIT) Preferred stock 1 -- 1,005 A 1,006 Common stock 83,297 3,000 (63,586) A 22,711 Additional paid-in-capital 1,124,298 25,918,000 (25,813,419)A,B,C 1,228,879 Accumulated other comprehensive loss -- (45,000) -- (45,000) Retained earnings (deficit) (1,295,184) (28,777,000) 25,876,000 B,C (4,196,184) ------------ ------------ ------------ ------------ Total shareholders' equity (deficit) (87,588) (2,901,000) -- (2,988,588) ------------ ------------ ------------ ------------ TOTAL LIABILITIES AND SHAREHOLDERS' (DEFICIT) $ 2,367,742 $ 3,018,000 $ -- $ 5,385,742 ============ ============ ============ ============ A To record the shares of common and preferred stock issued at the time of merger B To eliminate the Nuwave retained deficit C To record merger expense for the net liabilities acquired as a part of the merger F-28 CORPORATE STRATEGIES, INC. UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 2005 Corporate NuWave Strategies, Technologies, Inc. Inc. Adjustments Pro Forma ------------ ------------ ------------ ------------ REVENUE Commission income $ 599,269 $ -- $ -- $ 599,269 Discount income 98,608 -- -- 98,608 Consulting revenue 117,000 -- -- 117,000 Marketable securities gain 194,564 -- -- 194,564 Other income 89,159 -- -- 89,159 ------------ ------------ ------------ ------------ 1,098,600 -- -- 1,098,600 ------------ ------------ ------------ ------------ GENERAL AND ADMINISTRATIVE EXPENSES Salaries and benefits 360,165 77,770 (77,770) A 360,165 Commissions and loan processing 374,539 -- -- 374,539 Advertising 89,537 -- -- 89,537 Business development, travel and entertainment 82,044 -- -- 82,044 Rent 66,490 53,079 (53,079) A 66,490 Depreciation and amortization 27,642 4,397 -- 32,039 Professional fees 172,710 201,391 (151,391) A 222,710 Merger expense -- -- 2,901,000 B 2,901,000 Other 161,890 61,816 -- A 223,706 ------------ ------------ ------------ ------------ Total general and administrative expenses 1,335,017 398,453 2,618,760 4,352,230 ------------ ------------ ------------ ------------ OTHER (INCOME) EXPENSE Minority interest (750) -- -- (750) Interest expense 142,067 119,221 -- 261,288 Interest income (5,533) -- -- (5,533) Other income (46,517) -- -- (46,517) ------------ ------------ ------------ ------------ Total other expense 89,267 119,221 -- 208,488 ------------ ------------ ------------ ------------ Income (loss) before income tax (325,684) (517,674) (2,618,760) (3,462,118) ------------ ------------ ------------ ------------ INCOME TAX PROVISION Current income tax expense (benefit) -- -- -- -- Deferred income tax provision (benefit) 61,207 -- 61,207 ------------ ------------ ------------ ------------ Total income tax provision (benefit) 61,207 -- -- 61,207 ------------ ------------ ------------ ------------ NET LOSS (386,891) (517,674) (2,618,760) (3,523,325) Preferred dividends paid 30,060 -- -- 30,060 ------------ ------------ ------------ ------------ NET LOSS APPLICABLE TO COMMON SHARES $ (416,951) $ (517,674) $ (2,618,760) $ (3,553,385) ============ ============ ============ ============ Basic and diluted loss per common share $ (0.01) $ (0.23) $ (0.16) ============ ============ ============ Basic and diluted average shares outstanding 66,630,000 2,294,323 22,710,816 ============ ============ ============ COMPREHENSIVE LOSS Net Loss $ (416,951) $ (517,674) $ (2,618,760) $ (3,553,385) Unrealized gain on marketable securities -- (170,000) -- (170,000) ------------ ------------ ------------ ------------ Comprehensive loss $ (416,951) $ (687,674) $ (2,618,760) $ (3,723,385) ============ ============ ============ ============ A To eliminate revenue and expenses that do not relate to on-going operations B To record merger expense for the net liabilities acquired F-29 CORPORATE STRATEGIES, INC. UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 2004 Corporate NuWave Strategies, Technologies, Inc. Inc. Adjustments Pro Forma ------------ ------------ ------------ ------------ REVENUE Commission income $ 1,158,589 $ -- $ -- $ 1,158,589 Discount income 185,226 -- -- 185,226 Consulting revenue 153,270 -- -- 153,270 Marketable securities gain 310,049 -- -- 310,049 Other income 140,838 -- -- 140,838 ------------ ------------ ------------ ------------ 1,947,972 -- -- 1,947,972 ------------ ------------ ------------ ------------ GENERAL AND ADMINISTRATIVE EXPENSES Salaries and benefits 450,313 197,771 (197,771) A 450,313 Commissions and loan processing 723,221 -- -- 723,221 Advertising 164,732 -- -- 164,732 Business development, travel and entertainment 100,855 -- -- 100,855 Rent 62,426 48,678 (48,678) A 62,426 Depreciation and amortization 32,329 5,188 -- 37,517 Professional fees 319,855 344,340 (229,340) A 434,855 Bad Debt 388,000 -- -- 388,000 Merger Expense -- -- 2,901,000 B 2,901,000 Other 246,350 144,692 -- 391,042 ------------ ------------ ------------ ------------ Total general and administrative expenses 2,488,081 740,669 2,425,211 5,653,961 ------------ ------------ ------------ ------------ OTHER (INCOME) EXPENSE Minority interest (16,230) -- -- (16,230) Interest expense 370,894 517,531 (240,000) A 648,425 Interest income (36,433) (2,833) 2,833 A (36,433) Gain on forgiveness of debt -- (19,977) 19,977 A -- Gain on sale of interest in undeveloped land -- (850,001) 850,001 A -- ------------ ------------ ------------ ------------ Total other (income) expense 318,231 (355,280) 632,811 595,762 ------------ ------------ ------------ ------------ Loss before income tax (858,340) (385,389) (3,058,022) (4,301,751) INCOME TAX PROVISION Current income tax expense (benefit) 10,000 (49,590) 49,590 A 10,000 Deferred income tax provision (benefit) 33,807 -- -- 33,807 ------------ ------------ ------------ ------------ Total income tax provision (benefit) 43,807 (49,590) 49,590 43,807 ------------ ------------ ------------ ------------ NET LOSS (902,147) (335,799) (3,107,612) (4,345,558) Preferred dividends paid 72,086 -- -- 72,086 ------------ ------------ ------------ ------------ NET LOSS APPLICABLE TO COMMON SHARES $ (974,233) $ (335,799) $ (3,107,612) $ (4,417,644) ============ ============ ============ ============ Basic and diluted net loss per share $ (0.02) $ (0.17) $ (0.20) ============ ============ ============ Basic and diluted average shares outstanding 57,736,557 1,986,640 22,710,816 ============ ============ ============ COMPREHENSIVE LOSS Net Loss $ (974,233) $ (335,799) $ (3,107,612) (4,417,644) Unrealized gain on marketable securities -- 125,261 -- 125,261 ------------ ------------ ------------ ------------ Comprehensive loss $ (974,233) $ (210,538) $ (3,107,612) $ (4,292,383) ============ ============ ============ ============ A To eliminate revenue and expenses that do not relate to on-going operations B To record merger expense for the net liabilities acquired F-30