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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C.
FORM 8-K/A
AMENDMENT NO. 1
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
September 28, 1998
------------------------------------------------
Date of Report (date of earliest event reported)
TERRA TELECOMMUNICATIONS CORP.
----------------------------------------------------
Exact name of Registrant as Specified in its Charter
Nevada 0-21381 84-1349551
- --------------------------- --------------- ---------------------------
State or Other Jurisdiction Commission File IRS Employer Identification
of Incorporation Number Number
1101 Brickell Avenue, Suite 200, Miami, Florida 33131
----------------------------------------------------------
Address of Principal Executive Offices, Including Zip Code
(305) 577-9700
--------------------------------------------------
Registrant's Telephone Number, Including Area Code
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ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
(a) FINANCIAL STATEMENTS OF BUSINESSES ACQUIRED. The following
financial statements for World Access Communications Corp. and its combined
affiliates are filed herewith.
INDEX PAGE
AUDITED FINANCIAL STATEMENTS OF WORLD ACCESS COMMUNICATIONS
CORP AND ITS COMBINED AFFILIATES FOR THE YEARS ENDED
DECEMBER 31, 1997 AND 1996
Report of Independent Accountants............................ F-1
Combined Balance Sheets as of December 31, 1997 and 1996..... F-2
Combined Statements of Operations for the years ended
December 31, 1997 and 1996................................... F-3
Combined Statements of Changes in Shareholders' Equity
for the years ended December 1997 and 1996................... F-4
Combined Statements of Cash Flows for the years ended
December 31, 1997 and 1996................................... F-5
Notes to Combined Financial Statements....................... F-6
(b) PROFORMA FINANCIAL INFORMATION. Unaudited Pro Forma Financial
Statements for Terra Telecommunications Corp. and Cypress Capital, Inc. as of
June 30, 1998, and for the year ended December 31, 1997 and the six months
ended June 30, 1998, are filed herewith on pages F-14 - F-18.
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.
TERRA TELECOMMUNICATIONS CORP.
Dated: November 13, 1998 By: /s/ David C. Langle
David C. Langle, Vice President and
Chief Financial Officer
2
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REPORT OF INDEPENDENT ACCOUNTANTS
August 7, 1998
To the Board of Directors and
Shareholders of World Access Communications Corp.
In our opinion, the accompanying combined balance sheets and the related
combined statements of operations, changes in shareholders' equity and cash
flows present fairly, in all material respects, the financial position of
World Access Communications Corp. and its combined affiliates at December 31,
1997 and 1996, and the results of their operations and their cash flows for
each of the two years in the period ended December 31, 1997, in conformity
with generally accepted accounting principles. 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 of these statements in accordance with generally accepted
auditing standards which require that we plan and perform the audits 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, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for the opinion expressed above.
/s/ PricewaterhouseCoopers LLP
Miami, Florida
F-1
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WORLD ACCESS COMMUNICATIONS CORP.
AND COMBINED AFFILIATES
Combined Balance Sheets
December 31, 1997 and 1996
1997 1996
---------- ----------
ASSETS
Current Assets:
Cash and cash equivalents $ 70,045 $2,376,746
Investment securities 371,531 53,631
Accounts receivable 59,663 40,483
Other receivables - 82,124
Prepaid expenses and other current assets 76,496 -
Deferred income taxes 5,833 894,588
---------- ----------
Total current assets 583,568 3,447,572
Property and equipment, net 990,410 948,469
Investments in and receivables from
uncombined affiliates 153,587 78,644
Certificates of deposit 114,980 134,611
Other assets 527,000 -
---------- ----------
Total assets $2,369,545 $4,609,296
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Bank overdraft $ 183,786 $ -
Accounts payable and accrued expenses 1,483,474 681,740
Liability for discontinued operations 110,000 -
Share of losses in uncombined affiliates,
net of receivables 43,426 -
---------- ----------
Total current liabilities 1,820,686 681,740
Deferred income taxes 302,431 2,099,509
---------- ----------
Total liabilities 2,123,117 2,781,249
---------- ----------
Commitments and contingencies
(Notes 4, 6, 7 and 10)
Shareholders' equity:
Common stock, $5.00 par value, 100 shares
authorized, issued and outstanding 500 500
Common stock, $1.00 par value, 1,000 shares
authorized, issued and outstanding 1,000 1,000
Net unrealized holding gain on
investment securities 23,965 10,869
Retained earnings 947,949 2,467,292
Notes and interest receivable from
shareholders (726,986) (651,614)
---------- ----------
Total shareholders' equity 246,428 1,828,047
---------- ----------
Total liabilities and shareholders' equity $2,369,545 $4,609,296
========== ==========
See accompanying notes to combined financial statements.
F-2
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WORLD ACCESS COMMUNICATIONS CORP.
AND COMBINED AFFILIATES
Combined Statements of Operations
For the years ended December 31, 1997 and 1996
1997 1996
----------- -----------
Revenues $ 1,371,568 $ 5,669,364
Cost of revenues (1,813,441) (3,497,806)
----------- -----------
(441,873) 2,171,558
Selling, general and administrative expenses (1,554,259) (2,650,758)
----------- -----------
(1,996,132) (479,200)
----------- -----------
Other income (expense):
Dividend income 64,790 148,222
Interest income 70,528 98,622
Interest expense (65,000) (65,000)
Other income (expense) 38,099 (3,485)
----------- -----------
108,417 178,359
----------- -----------
Loss from continuing operations before
income taxes and equity in losses of
uncombined affiliates (1,887,715) (300,841)
Equity in losses of uncombined affiliates (272,262) (21,356)
----------- -----------
Loss from continuing operations before
income taxes (2,159,977) (322,197)
Income tax benefit 807,591 142,241
----------- -----------
Loss from continuing operations (1,352,386) (179,956)
Loss from discontinued operations,
net of tax credit of $100,731 (166,957) -
----------- -----------
Net loss $(1,519,343) $ (179,956)
=========== ===========
See accompanying notes to combined financial statements.
F-3
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WORLD ACCESS COMMUNICATIONS CORP.
AND COMBINED AFFILIATES
Combined Statements of Changes in Shareholders' Equity
For the years ended December 31, 1997 and 1996
<TABLE>
<CAPTION>
Unrealized
Holding Notes and
Gain on Interest Total
Common Stock Investment Retained Receivable - Shareholders
Shares Amount Securities Earnings Shareholders Equity
------ ------ ---------- ----------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Balance at
12/31/95: 1,100 $1,500 $ - $ 2,647,248 $ (250,000) $ 2,398,748
Advances to
shareholders - - - - (401,614) (401,614)
Change in
unrealized
holding
gain on
investment
securities - - 10,869 - - 10,869
Net loss - - - (179,956) - (179,956)
------ ------ ------- ----------- ---------- -----------
Balance at
12/31/96 1,100 1,500 10,869 2,467,292 (651,614) 1,828,047
Change in
unrealized
holding
gain on
investment
securities - - 13,096 - - 13,096
Advances to
shareholders - - - - (75,372) (75,372)
Net loss - - - (1,519,343) - (1,519,343)
------ ------ ------- ----------- ---------- -----------
Balance at
12/31/97 $1,100 $1,500 $23,965 $ 947,949 $ (726,986) $ 246,428
====== ====== ======= =========== ========== ===========
</TABLE>
See accompanying notes to combined financial statements.
F-4
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WORLD ACCESS COMMUNICATIONS CORP.
AND COMBINED AFFILIATES
Combined Statements of Cash Flows
For the years ended December 31, 1997 and 1996
1997 1996
----------- -----------
Cash flows from operating activities:
Net loss $(1,519,343) $ (179,956)
Adjustments to reconcile net loss to
net cash used in operating activities:
Deferred income taxes (908,322) (142,241)
Depreciation and amortization 230,407 148,731
Provision for uncollectible receivables 131,490 1,579,011
Gain on sales of investment securities (27,311) -
Gain on sale of fixed assets (27,611) -
Interest income on loans receivable,
shareholders (60,372) (51,793)
Equity in losses from uncombined affiliates 272,262 21,356
Provision for discontinued operations 110,000 -
Changes in operating assets and liabilities:
Accounts receivable (150,671) (1,017,866)
Other receivables 82,124 (44,124)
Prepaid expenses and other current assets (76,496) -
Other assets (27,000) -
Accounts payable and accrued expenses 801,734 (1,514,758)
----------- -----------
Net cash used in operating activities (1,169,109) (1,201,640)
Investing activities:
Purchases of property and equipment (272,348) (773,306)
Purchases of certificates of deposit - (134,611)
Proceeds from maturities of certificates
of deposit 19,631 -
Purchases of marketable securities (334,866) (42,762)
Proceeds from sales of investment securities 57,373 -
Proceeds from sale of fixed assets 27,611 -
Deposits on equipment (500,000) -
Investments in and receivables from
uncombined affiliates (303,779) (100,000)
----------- -----------
Net cash used in investing activities (1,306,378) (1,050,679)
Financing activities:
Bank overdraft 183,786 -
Loans receivable, shareholders (15,000) (349,821)
----------- -----------
Net cash provided by (used in)
financing activities 168,786 (349,821)
----------- -----------
Decrease in cash and cash equivalents (2,306,701) (2,602,140)
Cash and cash equivalents at beginning of year 2,376,746 4,978,886
----------- -----------
Cash and cash equivalents at end of year $ 70,045 $ 2,376,746
=========== ===========
Supplemental disclosure of non-cash investing
activities:
Increase in unrealized holding gain on
available for sale investment securities $ (13,096) $ (10,869)
=========== ===========
See accompanying notes to combined financial statements.
F-5
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WORLD ACCESS COMMUNICATIONS CORP.
AND COMBINED AFFILIATES
1. BUSINESS:
ORGANIZATION AND BASIS OF PRESENTATION
The 1996 financial statements are comprised of the combined accounts of World
Access Communications Corp. ("WACC"), incorporated in July 1991 pursuant to
the laws of the state of Florida, and Telecommunications Services, Inc.
("TSI"), incorporated in June 1989 pursuant to the laws of the state of
Florida. During 1996, the Companies' principal operations consisted of
"1-800" and "call-back" services. In May 1996, WACC formed a 50 percent joint
venture, World Access Communications C.A., in Venezuela to engage in "1-800"
and "call-back" operations.
The 1997 financial statements are comprised of the combined accounts of WACC,
TSI, Nextelcom Corp. ("NTC") and Inter-American Telecommunications Corp.
("IATC"), the latter two being incorporated in June and July 1997,
respectively, pursuant to the laws of the state of Florida. NTC was inactive
during 1997. During 1997, WACC assumed the operations of TSI, which
subsequently became inactive. During 1997, WACC obtained 50 percent interests
in joint ventures in Colombia and Peru to provide prepaid cellular phone
service in those countries. In January 1998, this segment of WACC's business
was discontinued (Note 4). In addition, WACC obtained a 50 percent interest
in a joint venture to sell prepaid calling cards throughout the Caribbean and
a 49 percent interest in a joint venture in Nicaragua to provide international
calling and beeper services in that country. The Caribbean and Nicaraguan
operations were nominal during 1997. Also during 1997, IATC formed a joint
venture to provide international calling services for customers primarily in
the United States to countries in South and Central America. These operations
were also nominal during 1997.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
PRINCIPLES OF COMBINATION
The combined financial statements include the accounts of World Access
Communications Corp., Telecommunications Services, Inc., Nextelcom Corp., and
InterAmerican Telecommunications Corp., entities under common ownership and
management. Investments in 20 percent to 50 percent-owned affiliates are
accounted for on the equity method. Significant intercompany balances and
transactions have been eliminated in combination.
INVESTMENTS IN UNCOMBINED AFFILIATES
Investments in uncombined affiliates are recorded at the Company's ownership
interest in the respective equity of each affiliate plus any receivables from
such affiliates. In cases where the uncombined affiliates have negative
equity, the Company records a liability for losses in uncombined affiliates to
the extent of the Company's ownership interest when the other investor funds
such losses, or 100 percent of the negative equity when the other investor
will not fund such losses. Receivables from the negative equity affiliates
are netted against the corresponding liability.
F-6
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CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with original maturities
of three months or less from the dates of purchase to be cash equivalents.
INVESTMENT SECURITIES
Investment securities consist of equity securities that the Company considers
"available for sale". Unrealized gains and losses on available for sale
securities are classified as a separate component of shareholders' equity.
FOREIGN CURRENCY TRANSLATION
The financial statements of the Company's South and Central American
uncombined affiliates are remeasured using the U.S. dollar as the functional
currency, as such affiliates operate in hyper-inflationary economies.
Monetary assets and liabilities denominated in a foreign currency are
remeasured into U.S. dollars at the year end exchange rate. Monetary profit
and loss accounts are translated using average exchange rates. Non-monetary
assets and liabilities, and related income and expense accounts are translated
at historical exchange rates.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost. Depreciation is provided using
the straightline method over the estimated useful lives of the assets.
Leasehold improvements are amortized over the shorter of the asset's estimated
useful life or the lease term. Estimated useful lives typically range from 3
to 7 years.
Upon the sale, retirement or other disposition of assets, the related cost and
accumulated depreciation and amortization are eliminated from the accounts,
and any gain or loss is recognized in operations.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
The Company uses estimates principally with respect to the economic useful
lives of property and equipment and the liability for loss on discontinued
operations. Actual results could differ from those estimates.
REVENUES
Revenues from long distance telecommunications services are recognized when
the services are provided.
COST OF REVENUES
Cost of revenues includes payments to local exchange carriers, interexchange
carriers, post, telegraph and telephone organizations and telecommunications
administration, primarily for access and transport charges. Cost of revenues
also includes depreciation relating to telecommunications switching equipment
owned by the Company.
F-7
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CONCENTRATIONS OF BUSINESS RISK AND SIGNIFICANT CUSTOMERS
During 1997, the Company had four customers which comprised approximately 96%
of total revenues. During 1996, three customers accounted for approximately
80% of total revenues.
During 1997, four suppliers accounted for approximately 85% of cost of
revenues, and for fiscal 1996, one supplier comprised approximately 84% of
cost of revenues, excluding depreciation on the telecommunications switch
equipment.
For the years ended December 31, 1997 and 1996, revenues by country were as
follows:
1997 1996
---- ----
Venezuela 41% -%
Burma 26 -
Panama 17 11
United Kingdom 13 -
United States 3 71
Other - 18
--- ---
100% 100%
Operating in international markets, particularly in South and Central America,
increases certain business risks to the Company. Such increased risks include
the dependence on foreign joint venture partners, obtaining and maintaining
required operating licenses and compliance with local laws and regulations.
INCOME TAXES
WACC and IATC utilize the asset and liability method of accounting for
deferred income taxes. Under this method, deferred tax assets and liabilities
are established based on the differences between the financial statement and
income tax bases of assets and liabilities using enacted tax rates in effect
for the year in which the differences are expected to reverse. The Company
provides a valuation allowance against deferred tax assets if, based on the
weight of available evidence, it is more likely than not that some or all of
the deferred tax assets will not be realized.
TST for federal and state income tax purposes is an S Corporation, owned 100%
by the principal officers of the Company. Accordingly, earnings and losses of
TSI for the years ended December 31, 1997 and 1996 pass through directly to
the shareholders. (Note 1)
3. INVESTMENT SECURITIES:
The cost and fair values of investments in equity securities at December 31,
1997 and 1996, were as follows:
F-8
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Gross Gross
Unrealized Unrealized Market
Cost Gains (Losses) Value
-------- ---------- ---------- --------
Equity securities at
December 31, 1997 $347,566 $36,400 $(12,435) $371,531
======== ======= ======== ========
Equity securities at
December 31, 1996 $ 42,762 $10,869 $ - $ 53,631
======== ======= ======== ========
Gains and losses resulting from sales of securities are determined using the
specific identification method.
4. DISCONTINUED OPERATIONS:
On January 28, 1998, the Company adopted a formal plan to discontinue its
prepaid cellular phone operations, which were being carried out by its 50
percent uncombined affiliates, ACC de Peru S.A. and ACC de Colombia S.A.
In April 1998, the Company sold its 50 percent interest in ACC de Peru S.A.
for approximately $2,800,000, resulting in a gain of approximately $2,800,000.
Also during April 1998, operations at ACC de Colombia S.A were suspended as a
result of a contractual dispute with the affiliate's service agent. The
Company is in the process of finding a buyer for its 50% interest.
As of December 31, 1997, the Company's investment in the Peru and Colombia
affiliates had been written off, and the Company had accrued $110,000 for
operating losses incurred through the measurement date of January 28, 1998.
Operating losses subsequent to the measurement date will be netted against the
gain on sale of the Company's interest in ACC de Peru S.A. For the year ended
December 31, 1997, the Company incurred losses of $166,957, net of a tax
credit of $100,731, relating to the discontinued prepaid cellular phone
operations.
5. PROPERTY AND EQUIPMENT, NET:
Property and equipment at December 31, 1997 and 1996 consisted of the
following:
1997 1996
---------- ---------
Transmission and communications
equipment $1,170,606 $ 974,152
Office equipment and furniture 159,959 84,065
Leasehold improvements 59,510 59,510
---------- ----------
1,390,075 1,117,727
Less accumulated depreciation
and amortization (399,665) (169,258)
---------- ----------
$ 990,410 $ 948,469
========== ==========
F-9
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6. LEASE OBLIGATIONS:
The Company rents office facilities and leases certain equipment under
noncancelable operating leases expiring at various dates through July 2001.
Rental expense for the years ended December 31, 1997 and 1996 was
approximately $61,000 and $52,000, respectively.
The Company has entered into telephone line lease agreements with its foreign
affiliates and/or partners. These line lease agreements range in terms from
one to three years with one year automatic renewals and, provide for monthly
recurring local line charges and commissions ranging from $0.03 - $0.05 per
minute of calls terminating at the foreign location. Certain of these
agreements provide for minimum guaranteed minutes and related commission
payable.
Total future minimum noncancelable commitments under these operating leases,
including minimum guaranteed payments for minutes relating to local line
charges, are as follows:
YEAR AMOUNT
---- ----------
1998 $1,280,000
1999 2,416,000
2000 2,207,000
2001 1,000
----------
$5,904,000
==========
LITIGATION
The Company is involved in various claims and is subject to possible actions
arising out of the normal course of its business. Although the ultimate
outcome of these claims cannot be ascertained at this time, it is the opinion
of the Company's management, based on knowledge and advice of counsel, that
the resolution of such claims and actions will not have a material adverse
effect on the Company's financial condition or results of operations.
PURCHASE COMMITMENT
In December 1997, the Company made a $500,000 deposit for the purchase of two
telecommunication switches having a total purchase price of $1,348,800. The
majority of the balance was paid as of July 31, 1998.
EMPLOYMENT CONTRACT
In September 1997, the Company entered into a three-year employment agreement
with one of its officers. Under the agreement, the officer receives an
initial base annual salary of $1 10,000 with annual performance bonuses as
defined. The agreement also provides for stock options to be issuable in the
event of a public offering of the Company's common stock, in addition to
certain fringe benefits.
F-10
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8. RELATED PARTY TRANSACTIONS:
As of December 31, 1997 and 1996, the Company had notes receivable from
shareholders amounting to $608,000 and $593,000, respectively, with related
interest receivable of $118,986 and $58,614, respectively. Interest accrues
at the rate of 10% per annum. These notes and related interest have a
maturity date on or before December 3 1, 1998, and have been recorded as a
separate component of shareholders' equity.
9. INCOME TAXES:
An analysis of the components of the income tax benefit is presented below:
YEAR ENDED DECEMBER 31,
1997 1996
---------- ----------
Provision (benefit) for income taxes:
Federal:
Current $ - $ -
Deferred (775,562) (121,451)
State:
Current - -
Deferred (132,760) (20,790)
---------- ----------
Income tax benefit $ (908,322) $ (142,241)
========== ==========
Deferred tax assets (liabilities) are comprised of the following:
YEAR ENDED DECEMBER 31,
1997 1996
---------- -----------
Deferred tax assets - current:
Allowance for doubtful accounts $ 5,645 $ 889,700
Other 188 4,888
---------- -----------
$ 5,833 $ 894,588
========== ===========
Deferred tax assets (liabilities) -
noncurrent:
Assets:
Operating loss carryforwards $1,393,270 $ -
Losses in uncombined affiliates 222,644 15,562
Other 44,569 25,197
---------- -----------
1,660,483 40,759
---------- -----------
Liabilities:
Accrued expenses (1,936,226) (2,116,006)
Depreciation (26,688) (24,262)
---------- -----------
(1,962,914) (2,140,268)
---------- -----------
$ (302,431) $(2,099,509)
========== ===========
F-11
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As of December 31, 1997, the net operating loss carryforwards expire as
follows:
YEAR ENDING FEDERAL STATE
----------- ------- -----
2011 $ - $ 694,000
2012 3,702,500 4,231,000
---------- ----------
$3,702,500 $4,925,000
========== ==========
10. SUBSEQUENT EVENTS:
The following is a summary of significant subsequent events:
A. Sale of Foreign Affiliate - ACC Peru, S.A..
On April 14, 1998, pursuant to a Stock Sale agreement, the Company sold all
the shares of its Peru affiliate, ACC de Peru, S.A., representing a 50% stock
interest in the affiliate, for $2,800,000. The sale was payable $2,000,000 in
cash at closing and a promissory note for $800,000 payable quarterly in four
equal installments at a 6% annual interest rate, with the first payment due 90
days after closing. The sale agreement also provided for the buyer to assume
any and all liabilities including an existing switch equipment lease held
between the Company and its Peru affiliate. The equipment lease requires
monthly lease payments of $22,950 for 36 months.
B. Sale of Proprietary Software.
As a result of litigation, on February 20, 1998, the Company entered into a
"Settlement Agreement and Mutual Release" (the "Agreement") with a vendor.
The Company had originally purchased from the vendor certain software for
$75,000. The software did not function as represented by the vendor,
resulting in processing difficulties for the Company. The Agreement
stipulated that the Company would receive a sum of $1,225,000, which was
received on March 2, 1998. The gain of approximately $1,150,000 was recorded
by the Company in March 1998.
C. Restructuring Agreement.
On January 27, 1998, a restructuring agreement was entered into among Global
Telecom Holding Corp. ("GTHC"), a newly formed holding company, WACC, TSI,
IATC and NTC, whereby the shareholders of WACC, TSI, IATC and NTC exchanged
all of their shares in these companies to GTHC in return for 100 shares of
GTHC, constituting all of the issued and outstanding capital stock of GTHC.
GHTC was subsequently renamed Terra Telecommunications Corp.
D. Investment Banker Letter Agreement.
On June 5, 1998, the Company entered into an agreement with Coast Partners
Securities ("Coast"), engaging Coast as its exclusive investment banker and
placement agent in connection with one or more private placement offerings of
securities. The current offering, which is contemplated for closing in
September 1998, consists of a private placement of $12,000,000 in two year
subordinated convertible debentures at an agreed upon coupon rate. There can
be no assurance that the Company will be successful in completing this
offering.
F-12
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<PAGE>
E. Network and Management.
On June 30, 1998, the Company entered into a network development and
management agreement (the "Network Agreement") with Resurgens, a long distance
telephone service provider. Under the Network Agreement, the Company agreed
to develop and manage for Resurgens a telecommunications network (the
"Network") in eight Latin American countries. During the six year term of the
Network Agreement, Resurgens is granted priority use of the Network. The
Company is also entitled to use the Network subject to Resurgens' priority.
Resurgens is solely responsible for billings and collections from its
subscribers and has agreed to prepay certain minimum usage amounts in advance
on a weekly basis, and has committed to purchase a minimum number of minutes
from the Company at an agreed upon price.
In order to finance the Network, NTC agreed to purchase from World Access,
Inc. of Atlanta, Georgia ("WAX"), a telecommunications switch and related
equipment necessary to service the Network for $2,503,870. Additionally, WAX
agreed to finance other equipment and the cost of services necessary to
complete the Network in the amount of $4,048,070. The total amount of
financing required to create the Network is covered by a secured financing
arrangement between NTC and WAX.
NTC's obligations under this financing arrangement are collateralized by three
promissory notes issued by NTC to WAX. The first of these notes, in the
amount of $2,503,870, represents the price of a main switch sold to NTC by WAX
and is payable in equal monthly installments of $53,412 beginning October 1998
and ending September 2003. The note is collateralized by the equipment
purchased and has been guaranteed by WACC. The second note, in the amount of
$1,730,070, represents the cost of certain additional equipment necessary to
create the Network. The note is payable in equal monthly installments of
$53,036 beginning in October 1998 and ending in September 2001. The note is
collateralized by a pledge of all of the outstanding capital stock of NTC and
a guaranty of payment by WACC. The third note, in the amount of $2,318,000,
represents the cost of services such as leases on premises, local telephone
lines and bandwidth necessary to operate the Network. The note is payable in
equal monthly installments of $59,600 beginning October 1998 through September
2001, at which time a balloon payment of $550,000 is due. The note is
collateralized by the assignment of the Network to WAX in the event of default
and a guarantee of payment by WACC. The notes bear interest at 9.5% per
annum.
F. During March 1998, the Company entered into joint venture agreements with
foreign nationals to form two Ecuadorian companies, one in charge of
operations and the other owning the infrastructure necessary to conduct
telecommunications business in Ecuador. The Company acquired a 40 percent
ownership interest in both of these companies. Through June 1998, the Company
had invested approximately $350,000 in these joint ventures through capital
contributions, equipment purchases and related expenditures.
F-13
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TERRA TELECOMMUNICATIONS CORP.
PRO FORMA COMBINED FINANCIAL STATEMENTS - UNAUDITED
The following unaudited pro forma financial statements are derived from the
historical financial statements of Terra Telecommunications Corp., and Cypress
Capital, Inc. and give pro forma effect to their combination on September 28,
1998. These pro forma statements should be read in conjunction with those
historical financial statements and related notes. The pro forma financial
statements do not purport to be indicative of the results that would actually
have been obtained if the combination had been in effect on the dates
indicated, or that may be obtained in the future.
F-14
<PAGE>
<PAGE>
TERRA TELECOMMUNICATIONS CORP.
PRO FORMA COMBINED BALANCE SHEETS - UNAUDITED
JUNE 30, 1998
<TABLE>
<CAPTION>
Historical Proforma
------------------------ ---------------------------
Terra Cypress Adjustments Combined
------------ --------- ------------ ------------
<S> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 870,054 $ 215 $ (215)(a) $ 870,054
Accounts receivable, net 375,588 375,588
Note receivable 809,000 809,000
Capital lease receivable 200,000 200,000
Prepaid expenses and other
current assets 56,007 150 (150)(a) 56,007
----------- -------- -----------
Total current assets 2,310,649 365 2,310,649
Property and equipment, net 1,764,918 1,764,918
Investments in and receiv-
ables from uncombined
affiliates at equity 319,975 319,975
Deferred taxes 812,994 812,994
Capital lease receivable 421,175 421,175
Other assets 452,169 452,169
----------- -------- -----------
Total assets $ 6,081,880 $ 365 $ 6,081,880
=========== ======== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable and
accrued expenses $ 1,841,050 $ 5,229 $ (5,229)(a) $ 1,841,050
Income taxes payable 110,000 110,000
Share of losses in uncom-
bined affiliates, net of
receivables 307,314 307,314
----------- -------- -----------
Total current liabilities 2,258,364 5,229 2,258,364
Deferred income taxes 1,421,165 1,421,165
Shareholders' Equity:
Common stock 100 125 775 (b) 1,000
Additional paid-in capital - 12,375 (12,375)(b) -
Retained earnings (deficit) 3,152,091 (17,364) 16,464 (b) 3,151,191
Notes and interest receiv-
ables from shareholders (749,840) - (749,840)
----------- -------- -----------
Total shareholders'
equity (deficit) 2,402,351 (4,864) 2,402,351
----------- -------- -----------
Total liabilities and
shareholders' equity $ 6,081,880 $ 365 $ 6,081,880
=========== ======== ===========
</TABLE>
F-15
<PAGE>
<PAGE>
TERRA TELECOMMUNICATIONS CORP.
PRO FORMA COMBINED STATEMENTS OF OPERATIONS - UNAUDITED
<TABLE>
<CAPTION>
Historical Proforma
Terra Cypress Adjustments Combined
------------ ----------- ------------ ------------
Year Ended Inception
12/31/97 (6/14/96)
to 12/31/97
------------ -----------
<S> <C> <C> <C> <C>
Revenues $ 1,371,568 $ - $ 1,371,568
Cost of revenues 1,813,441 1,813,441
----------- -------- -----------
(441,873) (441,873)
Selling, general and adminis-
trative expenses 1,554,259 12,106 (25)(a) 1,566,340
----------- -------- -----------
(1,996,132) (12,106) (2,008,213)
Other income, net 108,417 - 108,417
----------- -------- -----------
Loss from continuing opera-
tions before income taxes
and equity in losses of
uncombined affiliates (1,887,175) (12,106) (1,899,796)
Equity in losses of uncombined
affiliates (272,262) (272,262)
----------- -------- -----------
Loss from continuing opera-
tions before income taxes (2,159,977) (12,106) (2,172,058)
Income tax benefit 807,591 4,600 (c) 812,191
----------- -------- -----------
Loss from continuing opera-
tions (1,352,386) (12,106) (1,359,867)
Loss from discontinued
operations net of tax
credit of $100,731 (166,957) (166,957)
----------- -------- -----------
Net loss $(1,519,343) $(12,106) $(1,526,824)
=========== ======== ===========
Weighted average common
shares outstanding 10,000,000
===========
Pro forma earnings (loss)
per share $ (0.15)
===========
</TABLE>
F-16
<PAGE>
<PAGE>
TERRA TELECOMMUNICATIONS CORP.
PRO FORMA STATEMENT OF OPERATIONS - UNAUDITED
FOR THE SIX MONTHS ENDING JUNE 30, 1998
<TABLE>
<CAPTION>
Historical Proforma
------------------------ ---------------------------
Terra Cypress Adjustments Combined
------------ --------- ------------ ------------
<S> <C> <C> <C> <C>
Revenues $ 607,990 $ - $ 607,990
Cost of revenues 929,511 929,511
----------- -------- -----------
(321,521) (321,521)
Selling, general and adminis-
trative expenses 1,258,096 1,999 (25)(a) 1,260,070
----------- -------- -----------
(1,579,617) (1,999) (1,581,591)
Other income (expense):
Interest income, net 35,408 35,408
Other income 405,614 405,614
Gain on sale of affiliate 2,773,564 2,773,564
Gain on sale of software 1,150,000 1,150,000
----------- -------- -----------
Total other income, net 4,364,586 4,364,586
Income (loss) from operations
before income taxes 2,784,969 (1,999) 2,782,995
Equity in losses of uncombined
affiliates (178,000) (178,000)
Income taxes - deferred (403,925) 750 (c) (404,675)
----------- -------- -----------
Net income (loss) $ 2,203,044 $( 1,999) $ 2,200,320
=========== ======== ===========
Weighted average common
shares outstanding 10,000,000
===========
Pro forma earnings per
share $ 0.22
===========
</TABLE>
F-17
<PAGE>
<PAGE>
TERRA TELECOMMUNICATIONS CORP.
NOTES TO PRO FORMA COMBINED FINANCIAL STATEMENTS - UNAUDITED
NOTE A - BASIS OF PRESENTATION
On September 28, 1998, Terra Telecommunications Corp. ("Terra") was acquired
by Cypress Capital, Inc., a non-operating public shell corporation, through
exchange of 100% of the issued and outstanding shares of Terra's common stock
for approximately 95% of the then issued and outstanding shares of Cypress
common stock. Cypress's legal name was changed to Terra Telecommunications
Corp. The acquisition is considered to be a capital transaction, in substance
equivalent to the issuance of stock by Terra for the net monetary assets of
Cypress, accompanied by a recapitalization of Terra. The accompanying pro
forma combined balance sheet has been presented as if the acquisition occurred
on June 30, 1998 and the accompanying pro forma combined statements of
operations for the year ended December 31, 1997 and the six months ended June
30, 1998 have been prepared as if the acquisition had been consummated on
January 1, 1997.
NOTE B - PRO FORMA ADJUSTMENTS
Pro forma adjustments are necessary to reflect the assumed effect of the
combination on the balance sheet as of June 30, 1998 and statements of
operations assuming the acquisition was consummated on January 1, 1997. The
accompanying pro forma balance sheet and statements of operations reflect the
following adjustments:
To eliminate outstanding bills, organization costs and related amortization
expense on Cypress.
To eliminate Cypress equity and deficit as of June 30, 1998, record the
recapitalization of Terra with 10,000,000 shares of $.0001 par value common
stock for the net assets of Cypress.
To record estimated income tax benefit at consolidated effective rate.
F-18
