FINANCIAL STATEMENTS AND REPORT
OF INDEPENDENT CERTIFIED
PUBLIC ACCOUNTANTS
STARTCOMM CORP.
October 31, 1999 and
December 31, 1998 and 1997
<PAGE>
C O N T E N T S
Page
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS 1
FINANCIAL STATEMENTS
BALANCE SHEETS 2
STATEMENTS OF OPERATIONS 3
STATEMENT OF STOCKHOLDERS' EQUITY 4
STATEMENTS OF CASH FLOWS 5
NOTES TO FINANCIAL STATEMENTS 6 - 9
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REPORT OF INDEPENDENT CERTIFIED
PUBLIC ACCOUNTANTS
Board of Directors
Startcomm Corp.
We have audited the accompanying balance sheets of Startcomm Corp. as of October
31, 1999 and December 31, 1998 and 1997, and the related statements of
operations, stockholders' equity, and cash flows for the years ending December
31, 1998 and 1997 and the ten months ending October 31, 1999. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Startcomm Corp. as of October
31, 1999 and December 31, 1998 and 1997, and the results of their operations and
their cash flows for the years ending December 31, 1998 and 1997 and the ten
months ending October 31, 1999 then ended in conformity with generally accepted
accounting principles.
Miami, Florida
May 25, 2000
1
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Startcomm Corp.
BALANCE SHEETS
October 31, 1999 and December 31, 1998 and 1997
ASSETS
<TABLE>
<CAPTION>
October 31, December 31, December 31,
1999 1998 1997
--------------- ---------------- -----------
<S> <C> <C> <C>
Current assets
Cash $ 1,905 $ 37,101 $ -
Accounts receivables, net 20,933 36,792 26,234
--------------- ---------------- ---------------
Total current assets 22,838 73,893 26,234
Property and equipment, net 1,278,661 1,384,853 126,893
Other assets 27,906 20,904 54,103
--------------- ---------------- ---------------
Total assets $ 1,329,405 $ 1,479,650 $ 207,230
=============== ================ ===============
LIABILITIES AND STOCKHOLDER'S DEFICIT
Current liabilities
Bank overdraft $ - $ - $ 15,048
Accounts payable - equipment 1,172,038 1,023,863 46,137
Other payables and accrued liabilities 1,061,744 137,223 -
Customer deposits 792,973 127,974 -
Advances to Company - 904,391 -
--------------- ---------------- ----------------
Total current liabilities 3,026,754 2,193,451 61,185
StockholderS' EQUITY (DEFICIT)
Common stock - 5,000 shares of $1 par
value authorized, issued and outstanding
at October 31, 1999; 1,000 shares of
$1 par value authorized, issued and
outstanding at December 31, 1998 and
1997 5,000 1,000 1,000
Additional paid-in capital 2,650,183 1,428,792 557,694
Accumulated deficit (4,352,532) (2,143,593) (412,649)
--------------- ---------------- ----------------
Total stockholders' equity (deficit) (1,697,349) (713,801) 146,045
--------------- ---------------- ----------------
Total liabilities and stockholder's
equity $ 1,329,405 $ 1,479,650 $ 207,230
=============== ================ ================
</TABLE>
The accompanying notes are an integral part of these statements.
2
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Startcomm Corp.
STATEMENTS OF OPERATIONS
Ten Months Ended October 31, 1999 and
Years Ended December 31, 1998 and 1997
<TABLE>
<CAPTION>
Ten Months
Ended Year Ended Year Ended
October 31, December 31, December 31,
1999 1998 1997
--------------- ---------------- ------------
<S> <C> <C> <C>
Sales $ 521,880 $ 592,426 $ 138,890
Cost of sales 1,417,163 659,124 175,775
------------------ ---------------- ---------------
Gross (loss) profit (895,283) (66,698) (36,885)
Selling, general and administrative expenses 1,313,656 1,662,924 373,342
--------------- ---------------- ---------------
Loss from operations (2,208,939) (1,729,622) (410,227)
Interest (income) expense, net - 1,322 (552)
--------------- ---------------- ---------------
Loss before income taxes (2,208,939) (1,730,944) (409,675)
Income tax benefit - - -
--------------- ---------------- ---------------
Net loss $ (2,208,939) $ (1,730,944) $ (409,675)
=============== ================ ===============
</TABLE>
The accompanying notes are an integral part of these statements.
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Startcomm Corp.
STATEMENT OF STOCKHOLDERS' EQUITY
Two Years and Ten Months Ended October 31, 1999
<TABLE>
<CAPTION>
Common Stock Additional Total
------------------------------- Paid-In Accumulated Stockholders'
Shares Amount Capital Deficit Equity
------------- -------------- ------------- --------------- -------------
<S> <C> <C> <C> <C> <C>
Balance at
January 1, 1997 1,000 $ 1,000 $ 19,253 $ (2,974) $ 17,279
Capital contributions - - 538,441 - 538,441
Net loss - - - (409,675) (409,675)
------------- -------------- ------------- --------------- -------------
Balance at
December 31, 1997 1,000 1,000 557,694 (412,649) 146,045
Capital contributions - - 871,098 - 871,098
Net loss - - - (1,730,944) (1,730,944)
------------- -------------- ------------- --------------- -------------
Balance at
December 31, 1998 1,000 1,000 1,428,792 (2,143,593) (713,801)
Capital
contributions 4,000 4,000 317,000 - 321,000
Conversion of
advances to
Company
into capital
contributions - - 904,391 - 904,391
Net loss - - - (2,208,939) (2,208,939)
------------- -------------- ------------- --------------- -------------
Balance at
October 31, 1999 5,000 $ 5,000 $ 2,650,183 $ (4,352,532) $ (1,697,349)
============= ============== ============= =============== =============
</TABLE>
The accompanying notes are an integral part of these statements.
4
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Startcomm Corp.
STATEMENTS OF CASH FLOWS
Ten Months Ended October 31, 1999 and
Years Ended December 31, 1998 and 1997
<TABLE>
<CAPTION>
Ten Months
Ended Year Ended Year Ended
october 31, December 31, December 31,
1999 1998 1997
--------------- ---------------- ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss (2,208,939) $ (1,730,944) $ (409,675)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 283,717 222,335 21,149
Common stock issued for services 26,000 - -
Changes in assets and liabilities:
Accounts receivable 15,859 (10,558) (26,234)
Other assets (7,002) 33,198 (40,000)
Bank overdraft - (15,048) 15,048
Payable to equipment supplier 148,175 977,726 46,137
Other payables and accrued liabilities 924,520 137,223 -
Customer deposits 664,999 127,974 -
--------------- ---------------- ---------------
Net cash used in operating
activities (152,671) (258,094) (393,575)
Cash flows from investing activities
Acquisitions of property and equipment (177,525) (1,480,294) (148,042)
--------------- ---------------- ---------------
Cash flows from financing activities
Capital contributions 295,000 871,098 538,441
Advances to Company - 904,391 -
--------------- ---------------- ---------------
295,000 1,775,489 538,441
Net increase (decrease) in cash (35,196) 37,101 (3,176)
Cash at beginning of year 37,101 - 3,176
--------------- ---------------- ---------------
Cash at end of year $ 1,905 $ 37,101 $ -
=============== ================ ===============
Cash paid for interest $ - $ - $ -
=============== ================ ===============
Cash paid for taxes $ - $ - $ -
=============== ================ ===============
</TABLE>
Non-cash transactions:
During the ten months ended October 31, 1999, the Company issued 50 shares
of common stock for services and the Company recorded compensation expense
in the amount of $26,000. In addition, the Company converted $904,391 of
advances into capital contributions.
The accompanying notes are an integral part of these statements.
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Startcomm Corp.
NOTES TO FINANCIAL STATEMENTS
October 31, 1999 and December 31, 1998 and 1997
NOTE A - BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
Business
Startcomm Corp. (the "Company") was incorporated in 1996, under the laws of
the State of Florida, for the purpose of selling long distance services in
Latin America. Prior to 1998, the Company was classified as a development
stage Company.
In July 1998, the Company was approved by the Federal Communications
Commission to operate as a "Facilities-base and Resale Carrier" of
telecommunication services.
Cash and Cash Equivalents
The Company considers all highly liquid investments with maturities of
three months or less, when purchased, to be cash equivalents.
Property and Equipment
Property and equipment are recorded at cost and depreciated using the
straight-line method over the estimated useful lives of the assets. The
Company reviews property and equipment for impairment whenever events or
changes in circumstances indicate that the carrying amount may not be
recoverable.
Income Taxes
Deferred income taxes have been provided for elements of income and expense
which are recognized for financial reporting purposes in periods different
than such items are recognized for income tax purposes. The Company
accounts for deferred taxes utilizing the liability method, which apples
the enacted statutory rates in effect at the balance sheet date to
differences between the book and tax basis of assets and liabilities. The
resulting deferred tax liabilities and assets are adjusted to reflect
changes in tax laws.
Use of Estimates
In preparing the financial statements in conformity with generally accepted
accounting principles, management is required to make estimates and
assumptions that affect reported amounts of assets and liabilities and the
disclosure of contingent assets and liabilities at the date of the
financial statements and revenues and expenses during the reporting period.
Actual results could differ from those estimates.
(continued)
6
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Startcomm Corp.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
October 31, 1999 and December 31, 1998 and 1997
NOTE A - BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES - Continued
Fair Value of Financial Instruments
The Company estimates that the fair value of its financial instruments
approximates the carrying value of its financial instruments at October 31,
1999, December 31, 1998 and 1997.
Revenue Recognition
Voice transport and termination is recognized as revenue as the service is
provided.
Direct Cost of Revenue
Direct cost of revenue consists primarily of telecommunication costs and
connectivity costs. Direct cost of revenue excludes depreciation and
amortization.
NOTE B - PROPERTY AND EQUIPMENT
<TABLE>
<CAPTION>
October 31, December 31, December 31, Estimated
1999 1998 1997 Useful Lives
---------------- --------------- --------------- -------------
<S> <C> <C> <C> <C>
Operating
equipment $ 1,641,054 $ 1,509,706 $ 148,042 5
Office equipment 80,946 35,392 - 5 - 7
Leasehold
improvements 83,862 83,240 - 5
---------------- --------------- ---------------
1,805,862 1,628,337 148,042
Less:
accumulated
depreciation (527,200) (243,484) (21,149)
---------------- --------------- ---------------
$ 1,278,661 $ 1,384,853 $ 126,893
================ =============== ===============
</TABLE>
NOTE C - ACCOUNTS PAYABLE - EQUIPMENT
Accounts payable - equipment represent amounts due for telecommunication
equipment purchased from one vendor on 60, 90, and 120 days payment terms.
First payment is due sixty days after issuance of certificate of completion
by supplier. On May 25, 1999, the Company received the certificate.
7
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Startcomm Corp.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
October 31, 1999 and December 31, 1998 and 1997
NOTE D - CUSTOMER DEPOSITS
At October 31, 1999, included in customer deposits are guarantee deposits
amounting to $154,989 for certain termination agreements explained in Note
G. In the event the customers default on their obligations, the deposits
will be used to cover these obligations.
At October 31, 1999, one of the customer deposits in the amount of $637,984
is an advance payment for termination services to be used against future
billings. As the Company bills the customer, the deposit will be reduced
and the revenue recognized.
NOTE E - INCOME TAXES
The Company's temporary differences result in a net deferred tax asset
which is reduced to zero by related valuation allowance.
At October 31, 1999, the Company has available unused operating loss
carry-forwards, in the amount of approximately $4,000,000. The related tax
assets has not been recognize due to the uncertainty of the timing of its
recognition.
NOTE F - COMMITMENTS
Rent
The Company leases office space under operating leases expiring in December
2000 and May 2003. The leases provide for annual increases based on the
Consumer Price Index, and increases in the base amount of real estate taxes
and certain operating expenses paid by the landlord.
Future minimum lease commitments as of October 31, 1999, are approximately
as follows:
2000 $ 36,000
2001 37,500
2002 39,000
2003 23,300
--------------
$ 135,800
(continued)
8
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NOTE F - COMMITMENTS - Continued
Other
The Company has contractual agreements to provide its termination services
with several customers. These agreements range from one to five years.
The Company also has tariff contractual agreements with several vendors to
provide the Company with line services. These agreements include minimum
monthly purchase commitments. The agreements range for up to five years.
NOTE G - SUBSEQUENT EVENTS
In November 1999, 64% of the Company's shares were sold to Globaltron
Communication Corporation (Globaltron). Globaltron purchased 3,200 common
shares of the Company, payable with a promissory note for $667,000 and the
assumption of the Company's liabilities. The net operating loss
carryforwards noted in Note E are subject to separate IRC Section 382
limitations. The Section 382 limitation limits the Company's utilization of
its net operating losses to an annual amount after an ownership change.
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