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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
(AMENDMENT NO. 1)
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
February 12, 1999
------------------------------------------------
Date of Report (Date of earliest event reported)
STARTEC GLOBAL COMMUNICATIONS CORPORATION
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Maryland 000-23087 52-1660985
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(State or other (Commission (IRS Employer
jurisdiction of File No.) Identification
Incorporation No.)
10411 Motor City Drive Bethesda, Maryland 20817
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:
301-365-8959
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Not applicable
---------------------------------------------------------
Former name or former address, if changed since last report)
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<PAGE>
Item 2. Acquisition or Disposition of Assets.
On December 1, 1998, pursuant to a Stock Purchase Agreement dated November 30,
1998 by and among the Registrant, Pacific Systems Corporation, a Commonwealth of
Northern Mariana Islands corporation ("PSC"), PCI Communications, Inc., a Guam
corporation ("PCI"), and certain individual minority stockholders of PCI, the
Registrant closed its acquisition of PCI by acquiring all of the issued and
outstanding shares of PCI for an aggregate purchase price of $2,650,000, subject
to certain post-closing adjustments. This transaction was reported on a Form 8-K
filed December 15, 1998. This Amendment No. 1 to such report on Form 8-K is
being filed for the purpose of filing the required financial statements relating
to that transaction.
Item 7. Financial Statements and Exhibits.
(a) Financial statements of business acquired.
- Audited Balance Sheets of PCI as of September 30, 1998 and 1997.
- Audited Statements of Operations, Stockholders' Equity and Cash Flows
of PCI for the years ended September 30, 1998, 1997 and 1996.
(b) Pro forma financial information.
- Unaudited Pro Forma Balance Sheet of the Registrant as of September
30, 1998; Unaudited Pro Forma Statement of Operations of the
Registrant for the nine months ended September 30, 1998 and for the
year ended December 31, 1997.
(c) Exhibits.
Exhibits
--------
2 Stock Purchase Agreement dated as of November 30, 1998
(incorporated by reference from the Registrant's filing on
Form 8-K dated December 15, 1998).
23.1 Consent of Deloitte & Touche LLP.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the Registrant has duly caused this Report to be signed on its behalf
by the undersigned thereunto duly authorized.
STARTEC GLOBAL COMMUNICATIONS CORPORATION
By: /s/ SUBHASH PAI
-----------------------------------
Subhash Pai
Vice President and Controller
Dated: February 12, 1999
EXHIBIT INDEX
Exhibit No. Description Page
- ----------- ----------------------------------- -----
2 Stock Purchase Agreement dated as of November 30,
1998 (incorporated by reference from the Registrant's
filing on Form 8-K dated December 15, 1998).
23.1 Consent of Deloitte & Touche LLP.
<PAGE>
PCI COMMUNICATIONS, INC.
--------------------------------------------
FINANCIAL STATEMENTS AND
INDEPENDENT AUDITORS' REPORT
--------------------------------------------
YEARS ENDED SEPTEMBER 30, 1998 AND 1997
<PAGE>
[Deloitte Touche Tohmatsu Letterhead]
INDEPENDENT AUDITORS' REPORT
Board of Directors
PCI Communications, Inc.:
We have audited the accompanying balance sheets of PCI Communications, Inc. as
of September 30, 1998 and 1997, and the related statements of operations and
(deficit) retained earnings and cash flows for the years then ended. 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, such financial statements present fairly, in all material
respects, the financial position of PCI Communications, Inc. as of September 30,
1998 and 1997, and the results of its operations and its cash flows for the
years then ended, in conformity with generally accepted accounting principles.
/s/ Deloitte & Touche
January 14, 1999
<PAGE>
PCI COMMUNICATIONS, INC.
Balance Sheets
September 30, 1998 and 1997
<TABLE>
<CAPTION>
ASSETS (notes 6, 7 and 9) 1998 1997
------------------------- ---- ----
<S> <C> <C>
Current assets:
Cash $ 47,179 $ 160,075
Accounts receivable, net (note 8) 960,714 1,185,005
Other advances 9,173 4,052
Prepaid expenses 5,279 59,951
Deferred income tax asset (note 6) -- 110,000
---------------- ----------
Total current assets 1,022,345 1,519,083
Deposits (note 3) 172,798 158,283
Property, plant and equipment, net (note 2) 4,723,145 4,405,302
Due from affiliated companies (note 3) 199,044 396,502
---------- ----------
$ 6,117,332 $ 6,479,170
========= =========
LIABILITIES AND STOCKHOLDER'S (DEFICIENCY) EQUITY
-------------------------------------------------
Current liabilities:
Current portion of long-term debt (note 7) $ 48,446 $ 357,085
Accounts payable (note 4) 4,841,388 3,697,787
Accrued expenses 176,199 208,222
Customer deposits 178,459 115,112
Deferred revenue 135,334 41,058
Guam income taxes payable (note 6) 367,000 745,000
Current portion of redeemable, convertible preferred stock (note 5) - 110,924
---------- ----------
Total current liabilities 5,746,826 5,275,188
Long-term debt (note 7) 497,787 497,787
Redeemable, convertible preferred stock (note 5) - 20,680
--------- -----------
Total liabilities 6,244,613 5,793,655
--------- ---------
Stockholder's (deficiency) equity:
Common stock, $0.10 par value, 1,000,000 shares authorized,
662,490 shares issued and outstanding (note 9) 66,249 66,249
Additional paid-in capital 7,501 7,501
(Deficit) retained earnings (201,031) 611,765
---------- ----------
Total stockholder's (deficiency) equity (127,281) 685,515
------------ ----------
Contingencies (notes 4, 6, 10 and 11)
$ 6,117,332 $ 6,479,170
========= =========
</TABLE>
See accompanying notes to financial statements.
1
<PAGE>
PCI COMMUNICATIONS, INC.
Statements of Operations and (Deficit) Retained Earnings
Years Ended September 30, 1998 and 1997
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Revenues $ 5,766,291 $7,434,327
Cost of revenues 3,131,247 4,436,589
---------- ----------
Gross profit 2,635,044 2,997,738
--------- ---------
General and administrative expenses:
Salaries, wages and employee benefits 924,018 891,262
Depreciation and amortization 686,857 490,190
Corporate overhead (note 3) 560,337 831,000
Bad debts (note 8) 279,283 651,089
Professional fees (note 3) 271,043 460,890
Common area fees (note 3) 145,654 148,744
License fees 140,726 -
Communications and postage 134,321 112,372
Travel and entertainment 78,165 157,275
Office supplies 57,565 78,343
Advertising 47,128 393,785
Insurance 34,137 37,470
Miscellaneous 144,857 63,891
---------- -----------
Total general and administrative expenses 3,504,091 4,316,311
--------- -----------
Loss from operations (869,047) (1,318,573)
---------- -----------
Other income (expense):
Interest and penalties expense (427,432) (205,222)
Other income, net 150,214 67,830
---------- -------------
Total other expense, net (277,218) (137,392)
---------- ------------
Loss before benefit from Guam income taxes (1,146,265) (1,455,965)
Benefit from Guam income taxes (note 6) 333,469 490,631
---------- ------------
Net loss (812,796) (965,334)
Retained earnings at beginning of year 611,765 1,577,099
---------- -----------
(Deficit) retained earnings at end of year $ (201,031) $ 611,765
========== ============
</TABLE>
See accompanying notes to financial statements.
<PAGE>
PCI COMMUNICATIONS, INC.
Statements of Cash Flows
Years Ended September 30, 1998 and 1997
<TABLE>
<CAPTION>
1998 1997
---- ----
Cash flows from operating activities:
<S> <C> <C>
Net loss $ (812,796) $ (965,334)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization 686,857 490,190
Bad debts 279,283 651,089
Deferred income tax 110,000 47,000
(Increase) decrease in assets:
Receivables - trade (54,992) (838,881)
Receivables - other (5,121) 41,981
Prepaid expenses 54,672 (1,984)
Deposits (14,515) (95,917)
Other assets - 50,246
Due from affiliated companies 197,458 479,178
Increase (decrease) in liabilities:
Accounts payable 1,143,601 1,884,532
Customer deposits 63,347 81,906
Accrued expenses (32,023) 118,174
Deferred revenue 94,276 41,058
Guam income taxes payable (378,000) (537,630)
---------- ----------
Net cash provided by operating activities 1,332,047 1,445,608
--------- ---------
Cash flows from investing activities:
Purchase of property, plant and equipment (1,004,700) (2,060,940)
--------- ---------
Cash flows from financing activities:
Proceeds from long-term debt - 1,026,948
Repayment of long-term debt (440,243) (172,076)
Repurchase of preferred stock - (165,000)
---------- ----------
Net cash (used in) provided by financing activities (440,243) 689,872
---------- ----------
Net (decrease) increase in cash (112,896) 74,540
Cash at beginning of year 160,075 85,535
---------- -----------
Cash at end of year $ 47,179 $ 160,075
=========== ==========
Supplemental disclosure of cash flow information:
Income taxes paid $ 90,000 $ -
=========== ==========
Interest paid $ 109,462 $ 106,553
=========== ==========
</TABLE>
Non-cash transaction:
In November 1997, $135,000 of preferred stock was converted to a note
payable (note 5).
See accompanying notes to financial statements.
<PAGE>
PCI COMMUNICATIONS, INC.
Notes to Financial Statements
September 30, 1998 and 1997
(1) Summary of Significant Accounting Policies
--- ------------------------------------------
General
PCI Communications, Inc. (the Company), formerly known as Pacific
Connections, Inc., was incorporated under the laws of Guam on June 5,
1985. The Company's principal business is to provide long distance
telecommunications, private network and internet services. As of
September 30, 1998 and 1997, the Company was a wholly-owned subsidiary of
Pacific Systems Corporation. On November 30, 1998, Startec Global
Communication Corporation (Startec), a U.S. corporation, acquired all the
outstanding shares of the Company.
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 disclosures of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
Cash
----
For the purposes of the balance sheets and the statements of cash flows,
cash is defined as cash on hand and in banks.
Accounts Receivable - Trade
---------------------------
The Company provides unsecured credit to individuals and companies, most
of whom are located in Guam and the Commonwealth of the Northern Mariana
Islands (CNMI).
Property, Plant and Equipment
-----------------------------
Property, plant and equipment are recorded at cost. The Company utilizes
straight-line depreciation over the estimated useful lives of all
property, plant and equipment except leasehold improvements which are
amortized on a straight-line basis over the lesser of their useful lives
or the remaining term of applicable leases.
Deposits
--------
The Company utilizes long distance termination carriers, and deposits are
required by several of the carriers for the termination services.
Income Taxes
------------
The Company is taxed by and files its income tax return with the
Government of Guam. Guam's tax laws are similar to those of the United
States.
Deferred income tax assets and liabilities are recognized for the future
tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases and operating loss and tax credit carryforwards.
Deferred income tax assets and liabilities are measured using enacted tax
rates expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled. The effect
on deferred income tax assets and liabilities of a change in tax rates is
recognized in income in the period that includes the enactment date.
4
<PAGE>
PCI COMMUNICATIONS, INC.
Notes to Financial Statements
September 30, 1998 and 1997
(1) Summary of Significant Accounting Policies, Continued
- --- -----------------------------------------------------
Advertising Costs
-----------------
Advertising costs are expensed in the period incurred.
Project Development Costs
-------------------------
Project development costs are consulting and software development costs
associated with the design and development of the Company's
telecommunications systems and are depreciated over estimated useful
lives of five years.
Reclassifications
-----------------
Certain reclassifications have been made to the 1997 financial statements
to conform with the 1998 presentation.
(2) Property, Plant and Equipment
- --- -----------------------------
A summary of property, plant and equipment at September 30, 1998 and
1997, is as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Estimated
Useful Lives 1998 1997
------------ ---- ----
Fiber optic cable 25.5 years $ 2,219,216 $ 809,527
Furniture and fixtures 5 years 51,706 51,706
Equipment 5-10 years 2,359,076 2,155,162
Leasehold improvements 11-15 years 281,362 281,362
Software 3- 5 years 158,448 158,448
Project development costs 5 years 926,769 607,760
Projects in progress 425,000 1,352,914
---------- ---------
6,421,577 5,416,879
Less accumulated depreciation and amortization (1,698,432) (1,011,577)
--------- ---------
$ 4,723,145 $ 4,405,302
========= =========
(3) Related Party Transactions
- --- --------------------------
At September 30, 1998 and 1997, the following balances were due from (to)
affiliated companies:
1998 1997
---- ----
Pacific Systems Corporation (PSC) $ (930,912) $ (902,043)
Pacific Data Systems (PDS) 1,151,352 1,291,016
Pacific Data Systems International (21,396) 7,529
---------- ----------
$ 199,044 $ 396,502
========== ==========
</TABLE>
All affiliate company balances are non-interest bearing.
Deposits includes $40,000 and $35,000 for payments made by the Company on
behalf of PSC as of September 30, 1998 and 1997, respectively.
The Company acquired property and equipment through PDS of $30,686 and
$505,128 during the years ended September 30, 1998 and 1997,
respectively.
5
<PAGE>
PCI COMMUNICATIONS, INC.
Notes to Financial Statements
September 30, 1998 and 1997
(3) Related Party Transactions, Continued
- --- -------------------------------------
The Company was charged $560,337 and $831,000 for the years ended
September 30, 1998 and 1997, respectively, for management and
administrative costs by its parent company, PSC. These charges have been
recorded as corporate overhead expenses in the accompanying financial
statements. Management believes the allocations of management and
administrative costs reflected in the 1998 and 1997 financial statements
are reasonable; however, the costs of the corporate services allocated to
the Company are not necessarily indicative of the costs that would have
been incurred if the Company had performed these functions as a
stand-alone company. The 1998 and 1997 financial statements may not
necessarily reflect the results of the Company's operations, financial
position, changes in stockholder's (deficiency) equity or cash flows in
the future or what they would have been had the Company been a separate,
stand-alone company during such periods.
Common area fees paid to PDS totalled $145,654 and $148,744 for the Guam
office for the years ended September 30, 1998 and 1997, respectively.
Professional fees paid to PDS totalled $28,000 and $97,068 for the years
ended September 30, 1998 and 1997, respectively.
(4) Contingencies
- --- -------------
The Company has taken the position that it is required to pay Guam and
CNMI gross receipts taxes on only a portion of its internet, voice and
private network circuit revenue. This position is based, in part, on what
the Company believes is a reasonable and sustainable argument that the
Commerce Clause of the United States Constitution and the standards for
apportionment of such gross revenue taxes related thereto, is fully
applicable to Guam. As such, the Company has adopted a practice of
calculating and paying Guam gross receipts tax based on a gross receipts
tax apportionment formula used in other U.S. jurisdictions for
application to telecommunications services companies. If questioned, the
Company's position may be subject to challenge by the Government of
Guam's Department of Revenue and Taxation. The impact of any finding
contrary to the Company's position by the Government of Guam may have on
the accompanying financial statements cannot presently be determined.
Accordingly, no adjustment that may result from the ultimate resolution
of this matter has been made in the accompanying financial statements.
The Company is disputing amounts payable to telecommunications companies
for services provided to the Company. Management has recorded payables to
these companies of $1,552,924 at September 30, 1998. These recorded
payables are estimates and the ultimate outcome of litigation with these
companies may be materially different than estimated.
The Company is also subject to legal proceedings arising in the ordinary
course of its business operations. Management believes that the Company's
potential liability with respect to such proceedings is not material to
the Company's financial statements.
(5) Preferred Stock
- --- ---------------
The Company issued 40,000 shares of convertible preferred stock on
September 30, 1991, for $200,000. Under the original agreement, the
preferred stockholder had an option to redeem the shares for $10 per
share on September 25, 1996. The stockholder had redeemed $265,000 of the
preferred stock as of September 30, 1997. In November 1997, the remaining
preferred stock balance of $135,000 was converted to a note payable,
bearing interest at 10%. At September 30, 1997, preferred stock is
classified in accordance with the repayment terms of the note payable.
6
<PAGE>
PCI COMMUNICATIONS, INC.
Notes to Financial Statements
September 30, 1998 and 1997
(6) Income Taxes
- --- ------------
The benefit from (provision for) Guam income taxes for the years ended
September 30, 1998 and 1997 consist of the following:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Current $ 443,469 $ 537,631
Deferred (110,000) (47,000)
--------- --------
$ 333,469 $ 490,631
======= =======
</TABLE>
The income tax net operating loss for the years ended September 30, 1998
and 1997 has been carried back and applied against taxable income for the
years ended September 30, 1996 and 1995, resulting in a current income
tax benefit of $443,469 and $537,631, respectively.
The deferred income tax asset at September 30, 1998 and 1997 is the
income tax effect of differences in the Company's financial statement
carrying value and income tax basis of accounts receivable, accumulated
depreciation and deferred revenue. The Company has recorded a valuation
allowance for the deferred tax asset which is not expected to be realized
in future years. Components of the deferred Guam income tax asset as of
September 30, 1998 and 1997 are as follows:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Deferred Guam income tax asset $ 80,000 $ 110,000
Less valuation allowance (80,000) -
------ -------
Net deferred Guam income tax asset $ - $ 110,000
======= =======
</TABLE>
Guam income taxes payable at September 30, 1998 and 1997 includes accrued
interest and penalties of $360,395 and $210,000, respectively. Unpaid
Guam income taxes of $6,605 and $535,000 at September 30, 1998 and 1997,
respectively, continue to accrue interest and penalties until paid.
(7) Long-Term Debt
- --- --------------
As of September 30, 1998 and 1997, long-term debt is summarized as
follows:
<TABLE>
<CAPTION>
<S> <C> <C>
1998 1997
---- ----
Note payable to a bank in monthly installments of $33,137 including
interest at the bank's reference rate plus 1.75% per annum, (10% and
10.25% at September 30, 1998 and 1997, respectively), collateralized by
all the assets of the Company, maturing in March 2000. The note was paid
in full on October 15, 1998 with a portion of the proceeds from the
Startec note (note 9). $ 497,787 $ 854,872
Note payable to a company in monthly installments of $11,006 at interest
rate of 10% per annum, maturing in November 1999 and not collateralized. 48,446 -
-------- --------
546,233 854,872
Less current portion 48,446 357,085
-------- -------
Long-term debt $ 497,787 $ 497,787
======= =======
</TABLE>
7
<PAGE>
PCI COMMUNICATIONS, INC.
Notes to Financial Statements
September 30, 1998 and 1997
(7) Long-Term Debt, Continued
- --- -------------------------
At September 30, 1998 and 1997, the Company is not in compliance with
loan covenants associated with its note payable to a bank. Non-compliance
involves covenants addressing payment of taxes, maintenance of tangible
net worth, debt to tangible net worth ratio, cash flow to debt service
ratio and profitability. The note was paid in full on October 15, 1998
and replaced by long-term debt from Startec as described in note 9. The
note payable to a bank is classified as long-term at September 30, 1998
as Startec has represented that they will not demand repayment of their
promissory note prior to October 1999.
(8) Allowance for Doubtful Accounts
- --- -------------------------------
Movements in the allowance for doubtful accounts for the years ended
September 30, 1998 and 1997, were as follows:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Allowance for doubtful accounts, beginning of year $ 440,000 $ 552,655
Bad debts 279,283 651,089
Accounts receivable write-offs (447,219) (763,744)
-------- -------
Allowance for doubtful accounts, end of year $ 272,064 $ 440,000
======= =======
</TABLE>
(9) Subsequent Events
- --- -----------------
On October 15, 1998, the Company issued a senior promissory note of
$2,551,866 to Startec, with interest at 12%. Such promissory note is
collateralized by all assets and common stock of the Company. The
promissory note is also jointly and severally guaranteed by PSC and
officers of the Company.
On November 30, 1998, Startec acquired all the outstanding shares of the
Company.
The Company assumed the lease of its current office on December 1, 1998.
The original lease expires on December 31, 1998, with two options to
extend the term of the lease for consecutive periods of five years. Rent
from December 1998 through November 2003 will be $11,200 per month. From
December 2003 through November 2008, rent will be determined based on
fair market value of the property.
(10) Going Concern
- ---- -------------
The Company has suffered losses during the years ended September 30, 1998
and 1997, and has negative working capital at September 30, 1998.
Management's plans to address the Company's financial situation in fiscal
year 1999 are as follows:
a. The Company plans to reduce certain controllable operating expenses
and costs.
b. Startec will continue to provide financial support to Company.
8
<PAGE>
PCI COMMUNICATIONS, INC.
Notes to Financial Statements
September 30, 1998 and 1997
(11) Year 2000 Issue (Unaudited)
- ---- ---------------------------
Like other organizations and individuals around the world, the Company
could be adversely affected if the computer systems it uses and those
used by significant third parties do not properly process and calculate
date-related information and data. This is commonly known as the "Year
2000 issue." Management is assessing its computer systems and business
processes and intends to initiate actions to address the Year 2000 needs
identified. Management is also assessing the actions being taken by
significant third parties that interface with the Company. At this time
management is not able to determine the impact, including the costs of
remediation, of the "Year 2000 issue" on the Company.
9
<PAGE>
UNAUDITED PRO FORMA FINANCIAL STATEMENTS
The following unaudited pro forma financial statements give effect to the
PCI Communications Inc. ("PCI") acquisition for consideration of cash of
$2,650,000. The unaudited pro forma balance sheet gives effect to the
acquisition as if it had occurred on September 30, 1998. The unaudited pro forma
statements of operations assume that the acquisition was made as of January 1,
1997, for the unaudited pro forma statement of operations for the fiscal year
ended December 31, 1997, and as of January 1, 1998, for the unaudited pro forma
statement of operations for the nine months ended September 30,1998. The
unaudited pro forma statement of operations for the fiscal year ended December
31,1997,combines the PCI operating results for the twelve months ended September
30,1997,with the Company's results for the calendar year ended December 31,
1997. The unaudited pro forma statement of operations for the nine months ended
September 30,1998,combines the PCI operating results for the twelve months ended
September 30,1998, adjusted to eliminate the results for the three months ended
December 31,1997, with the Company's results for the nine months ended September
30,1998.
Prior to the acquisition, PCI was engaged in the business of providing
"Dial 1" and ISP services to the residential & small business customers. This
acquisition bolsters Startec's presence in Asian telecom markets, particularly
in Hong Kong, Korea, China and Philippines. It also complements Startec's
strategy of providing a full suite of telecommunications services to the ethnic
communities who call into emerging markets from North America and Western
Europe. This acquisition of PCI boosts Startec's cable ownership to ten
different cable systems.
The acquisition has been accounted for by the purchase method of acounting.
The purchase price has been allocated on a preliminary basis to the assets to be
acquired based upon the estimated value of such assets. Amounts allocated to the
goodwill in purchase accounting are being amortized on a straight-line basis
over a period of thirty years. The unaudited pro forma financial statements do
not purport to represent what the Company's results of operations or financial
position actually would have been had the acquisition occurred on the dates
specified, or to project the Company's results of operations or financial
position for any period or date. The pro forma adjustments are based upon
available information. In the opinion of the management all adjustments have
been made that are necessary to present fairly the unaudited pro forma financial
statements.
10
<PAGE>
STARTEC GLOBAL COMMUNICATIONS CORPORATION AND SUBSIDIARIES
PRO FORMA UNAUDITED BALANCE SHEET
AS OF SEPTEMBER 30,1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
HISTORICAL
-----------------------
STARTEC PCI ADJUSTMENTS PRO FORMA
---------- ----------- -------------- -----------
<S> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents .......................... $ 108,287 $ 47 (2,650)(1) $ 105,684
Accounts receivable, net ........................... 29,748 961 30,709
Accounts receivable, related party ................. 710 -- 710
Other current assets ............................... 3,588 14 3,602
--------- --------- ---------
Total current assets ........................... 142,333 1,022 140,705
========= ========= ========= ======
Property and equipment, net ........................... 22,755 4,723 27,478
--------- --------- ---------
Deferred debt financing costs, net .................... 6,382 -- 6,382
Other long term assets ................................ 150 372 522
Goodwill .............................................. -- -- 1,224(2) 1,224
Restricted cash and pledged securities ................ 52,597 -- 52,597
--------- --------- ---------
Total assets ................................... $ 224,217 $ 6,117 $ 228,908
========= ========= ========= ======
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable ................................. $ 27,644 $ 4,841 (1,553)(3) 30,932
Accrued expenses ................................. 11,780 905 12,685
Capital lease obligations ........................ 391 -- 391
--------- --------- ---------
Total current liabilities ...................... 39,815 5,746 44,008
--------- --------- ---------
Capital lease obligations, net of current portion ..... 164 -- 164
Long term debt ........................................ 157,969 498 158,467
Notes payable to individuals and other, net of current
portion ............................................... -- -- --
--------- --------- ---------
Total liabilities .............................. 197,948 6,244 202,639
--------- --------- ---------
Total stockholders' equity ............................ 26,269 (127) 127(4) 26,269
--------- --------- --------- ------
Total liabilities and stockholders' equity ............ $ 224,217 $ 6,117 $ 228,908
========= ========= =========
</TABLE>
The accompanying notes are an integral part of this unaudited pro
forma balance sheet
11
<PAGE>
STARTEC GLOBAL COMMUNICATIONS CORPORATION AND SUBSIDIARIES
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
HISTORICAL FIRST QUARTER
------------------------- ----------------
STARTEC PCI 1997-PCI ADJUSTMENTS PROFORMA
------- --- -------- ----------- --------
<S> <C> <C> <C> <C>
Net revenues.............................. $ 110,800 $ 5,766 $ (1,599) (7) $ 114,967
Cost of services........................... 96,436 3,131 (916) (7) 98,651
----------- ------------- -----------------
Gross margin......................... 14,364 2,635 16,316
Selling, general and administrative expenses 16,803 2,817 (1,098) (7) 18,522
Depreciation and amortization.............. 1,327 687 (120) (7) 31(5) 1,925
----------- ------------- -----------------
Loss from operations......... (3,766) (869) (4,131)
Interest expense........................... 7,707 427 299 (7) 8,433
Interest income............................ 3,700 150 (150) (7) (99)(6) 3,601
----------- ------------- -----------------
Loss before income tax benefit..... (7,773) (1,146) (8,963)
Income tax benefit......................... -- 333 47 (7) 380
----------- ------------- -----------------
Net Loss............................. $ (7,773) $ (813) $ (8,583)
=========== ============= =================
Net income (loss) per common share-basic and
diluted ................................... $ (0.87) $ (0.96)
=========== =================
Weighted average common shares outstanding -
basic and diluted...................... 8,939 8,939
=========== =================
</TABLE>
The accompanying notes are an integral part of this unaudited statement.
12
<PAGE>
STARTEC GLOBAL COMMUNICATIONS CORPORATION AND SUBSIDIARIES
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
HISTORICAL
-----------------------------------------
STARTEC PCI ADJUSTMENTS PRO FORMA
------------------ ------------------ ---------------- ----------------
<S> <C> <C> <C>
Net revenues.............................. $ 85,857 $ 7,434 $ 93,291
Cost of services........................... 75,783 4,437 80,220
------------------ ------------------ ----------------
Gross margin......................... 10,074 2,997 13,071
Selling, general and administrative expenses 7,526 3,826 11,352
Depreciation and amortization.............. 451 490 41 (5) 982
------------------ ------------------ ----------------
Income (loss) from operations........ 2,097 (1,319) 737
Interest expense........................... 762 205 967
Interest and other income.................. 313 68 (133)(6) 248
------------------ ------------------ ----------------
Income (loss) before income tax provision 1,648 (1,456)
(benefit) 18
Income tax ( provision) benefit............ (29) 491 462
------------------ ------------------ ----------------
Net income (loss).................... $ 1,619 $ (965) $ 480
================== ================== ================
Net income per common share-basic ........ $ 0.26 $ .08
================== ================
Net income per common share-diluted....... $ 0.25 $ .07
================== ================
Weighted average common shares outstanding -
basic.................................. 6,136 6,136
================== ================
Weighted average common shares
outstanding-diluted.................... 6,423 6,423
================== ================
</TABLE>
The accompanying notes are an integral part of this unaudited statement.
13
<PAGE>
EXPLANATORY NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
(1) Represents the reduction in cash to complete the purchase of PCI.
(2) Represents the excess cost over net assets of PCI.
(3) Represents the liabilities not assumed as a part of the purchase of PCI.
(4) Represents the elimination of historical equity of PCI.
(5) Represents amortization of the excess cost over net assets of PCI.
(6) Represents the reduction in interest income due to the reduction in cash to
complete the transaction.
(7) Represents subtraction of the results of PCI for the three-month period
ended December 31, 1997.
14
EXHIBIT 23.1
[Deloitte Touche Tohmatsu Letterhead]
February 11, 1999
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
Deloitte & Touche LLP hereby consents to the inclusion of our audit report dated
January 14, 1999, on the financial statements of PCI Communications, Inc. for
the years ended September 30, 1998 and 1997, in Startec Global Communications
Corporation's 8K filing with the Securities Exchange Commission.
Very truly yours
/s/ Deloitte & Touche LLP
