<PAGE>
FORM 8-K/A-1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): February 23, 2000
WORLDPAGES.COM, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 001-13875 76-0549396
(State or other jurisdiction of (Commission File Number) (IRS Employer
incorporation) Identification No.)
390 S. WOODS MILL ROAD, SUITE 260, ST. LOUIS, MISSOURI 63017
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (314) 205-8668
---------------------------------------------------------------------
(Former name or former address, if changed since last report.)
<PAGE>
The undersigned registrant hereby amends its Form 8-K dated February
23, 2000 and filed March 9, 2000 by amending Item 2, amending Item 7(a) and
7(b) and adding Item 7(c).
ITEM 2. ACQUISITION OF ASSETS
On February 23, 2000, WorldPages.com, Inc. (formerly known as
Advanced Communications Group, Inc.) ("WorldPages") closed the acquisitions
of all of the issued and outstanding capital stock of YPtel Corporation
("YPtel"), Web YP, Inc. ("Web YP") and Big Stuff, Inc. ("Big Stuff"). The
acquisitions were consummated in connection with the implementation of a
change in WorldPages' business focus, strategy and direction.
Pursuant to the Amended and Restated YPtel Agreement dated as of
October 26, 1999, WorldPages acquired YPtel by issuing the YPtel stockholders
an aggregate of 15,000,000 shares of WorldPages common stock, having an
agreed upon value of $5.50 per share. WorldPages acquired YPtel from its
stockholders, which ultimately consisted primarily of Canadian investors,
Barbadian trusts and certain United States investors. YPtel, through a
wholly-owned subsidiary, is one of the ten largest independent publishers of
yellow pages directories in the United States, producing 17 directories in
four states.
Pursuant to the Amended and Restated Web YP Agreement dated as of
October 26, 1999, WorldPages acquired Web YP by issuing to the Web YP
stockholders, consisting of Messrs. Richard O'Neal and Richard L. Reid and
certain other United States investors, an aggregate of 3,090,909 shares of
WorldPages common stock, having an agreed upon value of $5.50 per share. Web
YP and Big Stuff are affiliated companies, sharing common ownership,
management, marketing and administrative staffing. Big Stuff designs and
produces websites, which are marketed to Web YP's network of yellow and white
pages publishers. The websites are subsequently hosted by Web YP. Web YP then
features the customer in the WorldPages.com website directory and promotes
the websites to many of the major search engines.
Pursuant to the Amended and Restated Big Stuff Agreement dated as of
October 26, 1999, WorldPages acquired Big Stuff by issuing to the Big Stuff
stockholders, consisting of Messrs. O'Neal and Reid, an aggregate of
1,454,545 shares of WorldPages common stock, having an agreed upon value of
$5.50.
In connection with implementing the change in business focus,
strategy and direction, WorldPages issued 2,863,637 shares of WorldPages
common stock, having an agreed upon value of $5.50 per share, in redemption
of principal and interest on indebtedness in the form of 5% subordinated
promissory notes owed by WorldPages to the former stockholders of Great
Western Directories, Inc., a wholly-owned subsidiary of WorldPages, in the
principal amount of $15,000,000. WorldPages also issued 1,060,908 shares of
WorldPages common stock, having an agreed upon value of $5.50 per share, in
exchange for the cancellation of approximately $5.8 million in indebtedness
owed by Web YP and Big Stuff to Messrs. O'Neal and Reid.
Also in connection with implementing the foregoing, WorldPages
granted options and warrants to purchase WorldPages common stock. WorldPages
granted four former directors and one former officer of YPtel warrants to
purchase, in the aggregate, 75,000 shares of WorldPages common stock. These
warrants were granted to replace YPtel employee stock options. WorldPages
granted five YPtel employees options to purchase, in the aggregate, 186,281
shares of WorldPages common stock. These options were granted to replace
YPtel employee stock options. WorldPages also granted Messrs. Robert F.
Benton and Rod K. Cutsinger, two current WorldPages non-employee directors,
and Mr. Marvin C. Moses, a former WorldPages non-employee director, warrants
to purchase, in the aggregate, 90,000 shares of WorldPages common stock.
These warrants were granted as compensation for negotiating the YPtel, Web YP
and Big Stuff acquisition agreements.
As a result of the acquisitions and related transactions, Mr.
Richard O'Neal, WorldPages' chairman and chief executive officer and a former
significant stockholder of Web YP and Big Stuff, acquired 4,148,788
additional shares of WorldPages common stock, having a market value of
$15.6875 per share, or an aggregate of $65.1 million, as of the closing date.
Mr. O'Neal's ownership was increased from 4.4% to approximately 11.6%.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial Statements of Business Acquired
See the Index to Financial Statements attached hereto and incorporated
herein by reference.
(b) Pro Forma Financial Information
See the Index to Financial Statements attached hereto and incorporated
herein by reference.
(c) Exhibits
See the Exhibit Index attached hereto and incorporated herein by
reference.
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
WORLDPAGES.COM, INC.
Independent Auditors' Report................................ F-2
Consolidated Statements of Operations....................... F-3
Consolidated Balance Sheets................................. F-4
Consolidated Statements of Changes in Stockholders'
Equity.................................................... F-5
Consolidated Statements of Cash Flows....................... F-6
Notes to Consolidated Financial Statements.................. F-7
PACIFIC COAST PUBLISHING, INC.
Report of Independent Auditors.............................. F-21
Balance Sheets.............................................. F-22
Statements of Operations.................................... F-23
Statements of Stockholders' Equity.......................... F-24
Statements of Cash Flows.................................... F-25
Notes to Financial Statements............................... F-26
YPtel CORPORATION
Report of Independent Auditors.............................. F-32
Consolidated Balance Sheet.................................. F-33
Consolidated Statement of Income............................ F-34
Consolidated Statement of Changes in Shareholders' Equity... F-35
Consolidated Statement of Cash Flows........................ F-36
Notes to Consolidated Financial Statements.................. F-38
WEB YP, INC.
Independent Auditors' Report................................ F-48
Balance Sheets.............................................. F-49
Statements of Operations.................................... F-50
Statements of Stockholders' Deficit......................... F-51
Statements of Cash Flows.................................... F-52
Notes to Financial Statements............................... F-53
BIG STUFF, INC.
Unaudited Statements of Operations.......................... F-56
Unaudited Balance Sheets.................................... F-57
Unaudited Statements of Changes in Stockholders' Equity..... F-58
Unaudited Statements of Cash Flows.......................... F-59
Notes to Unaudited Financial Statements..................... F-60
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS........... F-63
Unaudited Pro Forma Combined Statements of Operations....... F-64
Unaudited Pro Forma Combined Balance Sheet.................. F-65
Notes to Unaudited Pro Forma Combined Balance Sheet......... F-66
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
WorldPages.com, Inc.:
We have audited the accompanying consolidated balance sheets of
WorldPages.com, Inc. and subsidiaries as of December 31, 1999 and 1998, and the
related consolidated statements of operations, changes in stockholders' equity,
and cash flows for each of the years in the three-year period ended
December 31, 1999. In connection with our audits of the consolidated financial
statements, we also have audited the accompanying financial statement schedule.
These consolidated financial statements and financial statement schedule are the
responsibility of WorldPages.com, Inc.'s management. Our responsibility is to
express an opinion on these consolidated financial statements and financial
statement schedule 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 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of
WorldPages.com, Inc. and subsidiaries as of December 31, 1999 and 1998, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1999, in conformity with generally accepted
accounting principles. Also, in our opinion, the related financial statement
schedule, when considered in relation to the basic consolidated financial
statements taken as a whole, presents fairly, in all material respects, the
information set forth therein.
KPMG LLP
St. Louis, Missouri
February 4, 2000
F-2
<PAGE>
WORLDPAGES.COM AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
Revenues................................................. $ 49,987 $ 38,090 $ --
Expenses:
Printing, distribution and listings.................... 13,440 8,670 --
Sales and marketing.................................... 11,464 8,976 --
General and administrative............................. 20,529 16,689 2,071
Depreciation and amortization.......................... 4,695 4,190 3
Stock-based compensation............................... -- 1,760 870
---------- ---------- ----------
Income (loss) from operations............................ (141) (2,195) (2,944)
Other income (expense):
Interest expense....................................... (4,766) (1,845) (256)
Other.................................................. 75 177 --
---------- ---------- ----------
Income (loss) from continuing operations before income
taxes.................................................. (4,832) (3,863) (3,200)
Income tax expense (benefit)............................. (1,465) (91) --
---------- ---------- ----------
Net income (loss) from continuing operations............. (3,367) (3,772) (3,200)
Loss from discontinued operations, net of tax benefit of
$4,007 and $6,368, respectively........................ (7,378) (7,507) --
Loss on sale of discontinued operations, net of tax
benefit of $8,145...................................... (51,800) -- --
---------- ---------- ----------
Net loss................................................. $ (62,545) $ (11,279) $ (3,200)
========== ========== ==========
Basic and diluted income (loss) per share from:
Continuing operations.................................. $ (.17) $ (.20) $ (.39)
Discontinued operations................................ (.37) (.41) --
Sale of discontinued operations........................ (2.60) -- --
---------- ---------- ----------
Net income (loss) per share............................ $ (3.14) $ (.61) $ (.39)
========== ========== ==========
Weighted average common shares outstanding............... 19,955,829 18,593,947 8,230,006
========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
WORLDPAGES.COM AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1999 1998
-------- --------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 1,315 $ 13,734
Accounts receivable (net of allowance of $4,246 in 1999
and $4,014 in 1998)..................................... 14,223 13,317
Deferred costs............................................ 4,482 3,888
Prepaid expenses and other current assets................. 174 94
Deferred taxes............................................ -- 3,398
-------- --------
Total current assets.................................... 20,194 34,431
-------- --------
Property, plant and equipment, net.......................... 1,377 1,134
Intangible assets from business acquisitions, net........... 75,413 81,255
Deferred taxes.............................................. 6,504 --
Other assets, net........................................... 5,571 1,022
Net assets held for sale.................................... -- 69,780
-------- --------
Total other assets...................................... 88,865 153,191
-------- --------
Total assets............................................ $109,059 $187,622
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities.................. $ 9,447 $ 4,844
Short-term debt and current maturities of long-term
debt.................................................... 24,000 17,117
Other current liabilities................................. 3,940 3,017
-------- --------
Total current liabilities............................... 37,387 24,978
Long-term obligations:
Long-term debt............................................ -- 17,233
Deferred tax liabilities.................................. -- 13,827
-------- --------
Total liabilities....................................... 37,387 56,038
-------- --------
Commitments and contingencies...............................
Stockholders' equity (deficit):
Preferred stock, Series A Redeemable Convertible $.0001
par value: 20,000,000 shares authorized; 0 and 142,857
shares issued and outstanding; $2,000 liquidation
preference.............................................. -- 1,122
Common stock, $.0001 par value: 180,000,000 shares
authorized; 20,426,753 and 19,859,262 shares issued and
outstanding, respectively............................... 2 2
Additional paid-in capital................................ 149,438 146,611
Treasury stock; 0 and 234,141 common shares,
respectively............................................ -- (1,013)
Retained earnings (accumulated deficit)................... (77,768) (15,138)
-------- --------
Total stockholders' equity.............................. 71,672 131,584
-------- --------
Total liabilities and stockholders' equity.............. $109,059 $187,622
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
WORLDPAGES.COM AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
RETAINED
COMMON STOCK EARNINGS TOTAL
--------------------- PREFERRED ADDITIONAL TREASURY (ACCUMULATED STOCKHOLDERS'
SHARES AMOUNT STOCK PAID-IN CAPITAL STOCK DEFICIT) EQUITY (DEFICIT)
---------- -------- --------- --------------- -------- ------------ ----------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance,
December 31,
1996............... 8,227,736 $1 $ -- $ 27 $ -- $ (659) $ (631)
Issuance of stock
options and
warrants........... -- -- -- 1,237 -- -- 1,237
Issuance of stock for
services
performed.......... 4,540 -- -- 50 -- -- 50
Net loss............. -- -- -- -- -- (3,200) (3,200)
---------- -- ------ -------- ------- -------- ---------
Balance, December 31,
1997............... 8,232,276 $1 $ -- $ 1,314 $ -- $ (3,859) $ (2,544)
Issuance of stock
options and
warrants........... -- -- -- 5,862 -- -- 5,862
Issuance of preferred
stock.............. -- -- 1,122 -- -- -- 1,122
Initial public
offering, net of
offering costs..... 8,000,000 1 -- 99,899 -- -- 99,900
Issuance of stock for
acquired
companies.......... 3,861,127 -- -- 39,536 -- -- 39,536
Acquisition of
treasury stock..... (234,141) -- -- -- (1,013) -- (1,013)
Net loss............. -- -- -- -- -- (11,279) (11,279)
---------- -- ------ -------- ------- -------- ---------
Balance, December 31,
1998............... 19,859,262 $2 $1,122 $146,611 $(1,013) $(15,138) $ 131,584
Stock option
exercises.......... 366,634 -- -- 1,705 785 (85) 2,405
Issuance of
restricted stock... 58,000 -- -- -- 228 -- 228
Conversion of
preferred stock.... 142,857 -- (1,122) 1,122 -- -- --
Net loss............. -- -- -- -- -- (62,545) (62,545)
---------- -- ------ -------- ------- -------- ---------
Balance, December 31,
1999............... 20,426,753 $2 $ -- $149,438 $ -- $(77,768) $ 71,672
========== == ====== ======== ======= ======== =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
WORLDPAGES.COM AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss.................................................. $(62,545) $(11,279) $(3,200)
Adjustments to reconcile net loss to net cash:
Depreciation and amortization........................... 4,695 4,190 3
Stock-based compensation expense........................ -- 1,760 870
Loss from discontinued operations, net.................. 7,378 7,507 --
Loss on sale of discontinued operations................. 51,800 -- --
Deferred tax provision.................................. (3,718) (6,459) --
Changes in operating assets and liabilities:
Decrease (increase) in:
Accounts receivable, net............................ (906) (184) 1
Deferred costs...................................... (594) 639 --
Prepaid expenses and other current assets........... (80) 581 --
Other assets, net................................... (3,161) 1,667 --
Increase (decrease) in:
Accounts payable and accrued liabilities............ 4,603 836 1,950
Other current liabilities........................... 923 706 --
-------- -------- -------
Net cash used in continuing operating activities.... (1,605) (36) (376)
Net cash used in discontinued operations............ (41,370) (8,812) --
-------- -------- -------
Net cash used in operating activities............... (42,975) (8,848) (376)
-------- -------- -------
Cash flows from investing activities:
Cash paid for businesses acquired, net of cash acquired... -- (83,256) --
Additions to property, plant and equipment, net........... (3,906) (16,738) --
Cash from sale of discontinued operations................. 43,127 10,000 --
-------- -------- -------
Net cash provided by (used in) investing
activities........................................ 39,221 (89,994) --
-------- -------- -------
Cash flows from financing activities:
Borrowings of long-term debt.............................. 52,883 17,000 2,566
Repayment of long-term debt............................... (62,338) (2,979) --
Increase in deferred offering costs....................... (780) (1,218) (2,223)
Proceeds from stock option exercises...................... 1,570 -- --
Proceeds from common stock issuance, net of offering
costs................................................... -- 99,900 --
Acquisition of treasury stock............................. -- (127) --
-------- -------- -------
Net cash provided by (used in) financing
activities........................................ (8,665) 112,576 343
-------- -------- -------
Net increase (decrease) in cash and cash
equivalents....................................... (12,419) 13,734 (33)
Cash and cash equivalents--beginning of year................ 13,734 -- 33
-------- -------- -------
Cash and cash equivalents--end of year...................... $ 1,315 $ 13,734 $ --
======== ======== =======
Supplemental cash flows information:
Cash paid for interest.................................... $ 3,038 $ 739 $ --
======== ======== =======
Cash paid for income taxes................................ $ 43 $ -- $ --
======== ======== =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
WORLDPAGES.COM AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
1. BASIS OF PRESENTATION
WorldPages.com, Inc. was originally founded and operated as Advanced
Communications Group, Inc. In February 2000, the name of the company was changed
to WorldPages.com, Inc. Accordingly, all disclosures and discussions within the
financial statements have been changed to reflect the new name of the company.
The consolidated financial statements include the accounts of WorldPages.com
and its wholly-owned subsidiaries. All significant intercompany transactions
have been eliminated in consolidation.
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect reported amounts of assets and liabilities and
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.
WorldPages.com was founded to provide a portfolio of telecommunications
services to business customers in service areas of Southwestern Bell and U S
WEST and publishes yellow pages directories in selected markets. WorldPages.com
completed its initial public offering (IPO) on February 18, 1998. In connection
with the IPO, WorldPages.com simultaneously acquired one yellow pages publisher
and eight telecommunications companies and a 49% interest in another company
(collectively, the Acquired Companies or the Acquisitions). Prior to February
1998, WorldPages.com had not conducted any operations other than those relating
to the IPO and the Acquisitions. Consequently, the financial statements included
herein relate only to the parent Company prior to February 18, 1998, but include
the results of Great Western, the yellow pages publisher, for the period
February 18, 1998 to December 31, 1998 and for all later periods as continuing
operations. The telecommunications companies and the 49% interest in another
company are included in discontinued operations.
Great Western Directories is WorldPages.com's only remaining operating
subsidiary at December 31, 1999. In November 1999, all of WorldPages.com's
telecommunications subsidiaries were sold and are therefore presented as
discontinued operations.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CASH AND CASH EQUIVALENTS--WorldPages.com considers cash in banks and
highly-liquid investments purchased with an original maturity of three months or
less to be cash and cash equivalents.
PROPERTY, PLANT AND EQUIPMENT--Property, plant and equipment are stated at
cost. Improvements are capitalized. Repair and maintenance costs are expensed as
incurred. The cost and related accumulated depreciation of assets retired or
disposed of and are removed from the accounts, and any gains or losses are
reflected in results of operations. Depreciation is computed using the
straight-line method over the respective useful lives of the assets. The
estimated useful lives of the assets are: buildings and improvements--40 years;
equipment--5 to 10 years; furniture and office equipment--3 to 5 years; and
leasehold improvements--shorter of life of lease or useful life of related
asset.
INTANGIBLE ASSETS FROM BUSINESS ACQUISITIONS--Intangible assets resulting
from the cost of businesses acquired exceeding the fair value of net assets
acquired consist principally of customer lists and goodwill. Customer lists and
goodwill are amortized on a straight-line basis over their estimated useful
lives of 10 years and 40 years, respectively. For the years ended December 31,
1999 and 1998,
F-7
<PAGE>
WORLDPAGES.COM AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
amortization expense relating to intangible assets was $4,532,000 and
$4,402,000, respectively and accumulated amortization totaled $8,408,000 and
$3,876,000 at December 31, 1999 and 1998, respectively.
OTHER ASSETS, NET--Other assets consist of deferred debt issuance costs and
deferred acquisition costs. The costs incurred in connection with obtaining debt
facilities are deferred and amortized on a straight-line basis over the life of
the related debt instrument. Deferred acquisition costs consists of legal,
accounting and other costs related to acquisitions which are included in the
purchase price and allocated to assets acquired.
INCOME TAXES--Income taxes are recognized during the year based on all
events that have been recognized in the consolidated financial statements, with
deferred taxes being provided for differences between the book basis and tax
basis of assets and liabilities as measured by the enacted tax laws.
REVENUE RECOGNITION--Directory revenues are derived from the sale of
advertising space in telephone directories and are recognized on the date that
the directory is published and substantially delivered. If the estimate of total
directory costs exceeds advertising revenues for a specific region's telephone
directory, a provision is made for the entire amount of such estimated loss.
Directory costs are deferred until the date that the directory is published and
substantially delivered. Directory costs include all direct costs related to the
publishing of a telephone directory, such as publishing and distribution
expenses, commissions on sales, other selling expenses and estimated bad debt
expense. General and administrative costs are charged to expense as incurred.
Costs incurred with the expansion into new markets include all direct costs
related to the publishing of a first-year telephone directory (prototype
directory). Advertising space in prototype directories is generally provided to
advertisers at no cost; therefore, generally no advertising revenues are derived
from prototype directories. Because the future economic benefit of the direct
costs related to prototype directories cannot be determined, such direct costs
are charged to expense as incurred. WorldPages.com recognized net expense of
approximately $3.1 million and $0.4 million in the years ended December 31, 1999
and 1998, respectively, relating to prototype directories.
STOCK-BASED COMPENSATION--WorldPages.com has elected to follow the intrinsic
value method and has included in these financial statements pro forma
disclosures of net loss and net loss per share as if the fair value method of
accounting had been applied. No employee stock options or similar equity
instruments were issued by WorldPages.com prior to January 1, 1997.
NET EARNINGS (LOSS) PER SHARE--Basic earnings per share (Basic EPS) is
determined by dividing income available to common stockholders by the weighted
average number of common shares outstanding during the period. Diluted earnings
per share (Diluted EPS) reflects the potential dilution that could occur if
securities and other contracts to issue common stock were exercised or converted
into common stock. In periods in which the inclusion of such securities or
contracts are anti-dilutive, the effect of such securities is not given
consideration. In calculating Diluted EPS for the year ended December 31, 1999,
1998, and 1997, options and warrants to purchase 3,806,523, 3,960,312, and
2,288,640, respectively, shares of common stock were outstanding during part of
the year but were not included in the computation of Diluted EPS due to their
anti-dilutive effect.
F-8
<PAGE>
WORLDPAGES.COM AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
FAIR VALUE OF FINANCIAL INSTRUMENTS--WorldPages.com's only financial
instruments are cash, short-term trade receivables and payables and notes
payable. Management believes the carrying amounts of the financial instruments
classified as current assets and liabilities approximate their fair values
because of their short-term nature. Management believes the carrying value of
its notes payable obligations approximate fair value.
IMPAIRMENT OF LONG-LIVED ASSETS AND LONG-LIVED ASSETS TO BE DISPOSED
OF--Long-lived assets and certain identifiable intangibles are reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. Recoverability of assets to
be held and used is measured by a comparison of the carrying amount of an asset
to future net cash flow expected to be generated by the asset. If such assets
are considered to be impaired, the impairment to be recognized is measured by
the amount by which the carrying amount of the assets exceed the fair value of
the assets.
COMPREHENSIVE INCOME--For the years ended December 31, 1999, 1998, and 1997,
WorldPages.com did not incur items to be reported in comprehensive income that
were not already included in the reported net earnings; therefore, comprehensive
income (loss) and net income (loss) were the same for these periods.
RECLASSIFICATIONS--Certain amounts presented in the 1998 consolidated
financials statements have been reclassified to conform with the 1999
presentation.
3. DISCONTINUED OPERATIONS
In April 1999, WorldPages.com announced that it intended to divest its
telecommunications segment in connection with several strategic acquisitions. In
July 1999, WorldPages.com and four of its wholly-owned subsidiaries, Feist Long
Distance Services, Inc., FirsTel, Inc., Telecom Resources, Inc. and Valu-Line of
Longview, Inc., entered into a stock purchase agreement with Ionex
Telecommunications, Inc. under which WorldPages.com agreed to sell all of the
capital stock of those wholly-owned subsidiaries to Ionex Telecommunications for
$49.8 million, subject to a dollar-for-dollar reduction to the extent current
assets are less than current liabilities at the time of closing and to the
extent of any decrease in property, plant and equipment from May 1, 1999 to the
closing date. The sale was completed on November 19, 1999 and WorldPages.com
received $42.6 million, representing the purchase price less a preliminary
working capital adjustment. The estimated remaining costs of the transaction are
included in other liabilities in the financial statements.
As a result of the divestiture, the results of all the telecommunications
segment from the date of the announcement are classified as discontinued
operations in the accompanying consolidated financial statements. Revenues from
the discontinued telecommunications segment were $86.2 million and
$59.6 million in 1999 and 1998, respectively. Net losses from the discontinued
telecommunications operations were $7.4 million, net of an income tax benefit of
$4.0 million in 1999, and $7.5 million, net of an income tax benefit of
$6.4 million in 1998.
WorldPages.com has recorded a loss on the sale of the discontinued
telecommunications operations of $51.8 million. The loss on the sale of the
discontinued operations includes operating losses incurred through the
completion of the sale, transaction costs, exit costs of leased facilities,
F-9
<PAGE>
WORLDPAGES.COM AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
3. DISCONTINUED OPERATIONS (CONTINUED)
employee severance and termination costs, and proceeds from the sale. The loss
is recorded net of an income tax benefit of $8.1 million.
In connection with the IPO, WorldPages.com purchased a 49% interest in
KINNET, an owner and operator of a fiber optic network in Kansas, for
$18.0 million. WorldPages.com accounted for its investment in KINNET using the
equity method. In December 1998, WorldPages.com sold its entire interest in
KINNET back to the original owner of KINNET for $10.0 million in cash,
225,000 shares of WorldPages.com's common stock, valued at $0.9 million, and the
indefeasible right to use (IRU) certain network facilities of KINNET valued at
$7.0 million. The sale of the KINNET stock resulted in a $2.4 million loss due
to the tax effect associated with this transaction. The loss on the sale of
KINNET is also included in the loss on the discontinued telecommunications
operations. The net assets and liabilities of the discontinued
telecommunications operations are classified on the accompanying consolidated
balance sheet as net assets held for sale at December 31, 1998.
4. ACQUISITIONS
In April 1999, WorldPages.com's Board of Directors approved a letter of
intent to acquire all the outstanding stock of YPtel Corporation, Web YP, Inc.
and Big Stuff, Inc. for approximately 19.5 million newly issued shares of common
stock. YPtel Corporation is the parent of Pacific Coast Publishing, Ltd. a
leading yellow pages publisher located in Tacoma, Washington. Web YP maintains a
website and operates an Internet yellow pages network that is integrated with
Big Stuff's yellow pages services. In connection with the acquisitions,
WorldPages.com's Chairman and CEO, Richard O'Neal and the other 5% Note holders
have agreed to convert the $15.0 million 5% Notes and accrued interest owed by
WorldPages.com into approximately 2,864,000 shares of common stock in support of
WorldPages.com's strategy. See discussion of subsequent events in note 15 to the
consolidated financial statements.
In February 1998, WorldPages.com completed its IPO. Concurrent with and as a
condition to the closing of the IPO, WorldPages.com acquired all of the
outstanding capital stock of Great Western Directories, Inc., Valu-Line of
Longview, Inc., Feist Long Distance Service, Inc., FirsTel, Inc. and Tele-
Systems, Inc., substantially all of the assets of Long Distance Management
II, Inc., Long Distance Management of Kansas, Inc., The Switchboard of Oklahoma
City, Inc., and National Telecom, a proprietorship, and 49% of the outstanding
capital stock of KINNET (collectively the Acquisitions or the Acquired
Companies). The Acquisitions are accounted for using the purchase method of
accounting.
F-10
<PAGE>
WORLDPAGES.COM AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
4. ACQUISITIONS (CONTINUED)
The following table sets forth for accounting purposes the fair value of
consideration paid with respect to the acquisition of Great Western and the
assets acquired:
<TABLE>
<CAPTION>
(IN THOUSANDS)
- --------------
<S> <C>
Consideration Paid for Acquired Companies:
Cash...................................................... $55,634
Common stock.............................................. 8,000
Notes payable............................................. 15,000
Options and warrants...................................... 3,125
-------
Total purchase price.................................... $81,759
=======
Assets Acquired:
Net working capital....................................... $ 6,160
Property and equipment.................................... 1,237
Customer lists............................................ 32,900
Goodwill.................................................. 50,921
Net deferred tax liability................................ (9,459)
-------
Total assets acquired................................... $81,759
=======
</TABLE>
In addition to the acquisition of Great Western, WorldPages.com purchased
the other acquired companies for $62.6 million in cash, stock options and notes
payable. These acquisitions resulted in $47.0 million of goodwill,
$14.9 million of customer lists and $.7 million of net other assets which have
been classified as net assets held for sale at December 31, 1998.
The following pro forma information presents results of operations as if the
acquisition of Great Western had occurred at the beginning of the periods
presented. This pro forma information is based on historical information and
does not necessarily reflect the actual results that would have occurred nor is
it necessarily indicative of the future results of the combined companies.
<TABLE>
<CAPTION>
PRO FORMA INFORMATION (UNAUDITED, IN THOUSANDS) 1998 1997
- ----------------------------------------------- -------- --------
<S> <C> <C>
Total revenues from continuing operations................... $ 47,336 $ 43,247
Net loss from continuing operations......................... (2,972) (2,563)
Loss per share from continuing operations................... (.15) (.13)
</TABLE>
In November 1998, WorldPages.com acquired all of the outstanding stock of
Telecom Resources, Inc. and affiliates (TRI) for 477,538 newly issued shares of
common stock valued at $1.6 million. TRI, based in Dallas, Texas, offers its
customers a web-based virtual office package that combines voice, fax and data
into a single interface. This acquisition is accounted for under the purchase
method of accounting. The excess of cost over the estimated fair value of assets
acquired and liabilities assumed was allocated to goodwill. Approximately
$3.3 million was allocated to goodwill and will be amortized over 15 years. The
results of operations and the pro forma results would not have been
significantly different if TRI had been acquired at the beginning of 1998. As
described in Note 3, TRI was sold with WorldPages.com's telecom subsidiaries in
November 1999.
F-11
<PAGE>
WORLDPAGES.COM AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
5. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consisted of the following at December 31,
1999 and 1998:
<TABLE>
<CAPTION>
(IN THOUSANDS) 1999 1998
- -------------- -------- --------
<S> <C> <C>
Land and buildings.......................................... $ 544 $ 544
Leasehold improvements...................................... 387 388
Furniture and office equipment.............................. 1,883 1,443
-------- --------
2,814 2,375
Less accumulated depreciation............................... (1,437) (1,241)
-------- --------
$ 1,377 $ 1,134
======== ========
</TABLE>
6. LONG-TERM DEBT
The carrying amount of long-term debt, which approximates fair value,
consisted of the following at December 31, 1999 and 1998:
<TABLE>
<CAPTION>
(IN THOUSANDS) 1999 1998
- -------------- -------- --------
<S> <C> <C>
Borrowings under revolving line of credit, variable
interest, 9.25% and 8.25% at December 31, 1999 and 1998,
respectively.............................................. $ 7,000 $ 17,000
5% Notes payable due February 18, 2000, interest due
annually (related parties)................................ 15,000 15,000
10% Convertible Notes due February 18, 2000, interest due
annually (related parties)................................ 2,000 2,000
7% Note due annually through February 18, 2001, interest due
annually (related parties)................................ -- 350
-------- --------
24,000 34,350
Less short-term borrowings and current maturities........... (24,000) (17,117)
-------- --------
$ -- $ 17,233
======== ========
</TABLE>
The weighted average interest rates at December 31, 1999 and 1998 for
short-term borrowings were 6.7% and 8.2%, respectively.
On May 14, 1999, WorldPages.com, through its wholly-owned yellow
pages publishing subsidiary, Great Western, entered into a $40.0 million
revolving loan agreement with Bank of America National Trust and Savings
Association. WorldPages.com used a portion of the credit facility to refinance
an existing $25.0 million credit facility and to finance its discontinued
telecommunications operations. In connection with the closing of the sale of the
telecommunications operations, the revolving credit facility was amended to
reduce the total available borrowings to $15.0 million. The balance of the new
credit facility is, subject to various restrictions, for the general working
capital needs and other corporate purposes of WorldPages.com and Great Western.
Interest on the facility varies at LIBOR (adjusted by the Eurodollar reserve
percentage) plus 2.75% or at the Bank of America's prime or base rate plus .75%.
The facility requires a commitment fee of .5% on the unused balance and is
subject to various restrictions and the maintenance of certain financial ratios.
The facility expires on May 13, 2000
F-12
<PAGE>
WORLDPAGES.COM AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
6. LONG-TERM DEBT (CONTINUED)
and WorldPages.com guaranteed the loan by pledging to Bank of America
substantially all of its assets. See discussion of subsequent events in note 15
to the consolidated financial statements.
In connection with the acquisitions of YPtel Corporation, Web YP, Inc. and
Big Stuff, Inc., (Note 4), WorldPages.com intends to issue approximately
2,863,637 shares of WorldPages.com's common stock in redemption of the
$15.0 million 5% Notes and accrued interest owed thereon. The 5% Notes are owed
to the former stockholders of Great Western, including Mr. Richard O'Neal,
WorldPages.com's Chairman of the Board and Chief Executive Officer and three
other managers of Great Western. The indebtedness was originally incurred in
connection with WorldPages.com's acquisition of Great Western in February 1998.
See discussion of subsequent events in note 15 to the consolidated financial
statements.
The 5% Notes and 10% Convertible Notes may be prepaid at any time and are
subordinated to WorldPages.com's senior debt as defined therein. The 10%
Convertible Notes are convertible into shares of WorldPages.com's common stock
at $14.00 per share.
Until the IPO, WorldPages.com's activities had been financed through a
Subordinated Promissory Note as amended (the Note), with Consolidated Partners
Founding Fund (CPFF), a related party, in the principal amount of $3,230,000 and
bearing an annual interest rate of 8%. The Note was due on the earlier of
December 31, 1998, or the consummation of the IPO. In connection with the IPO in
February 1998, the entire balance of the Note was repaid. During 1998 and 1997,
WorldPages.com incurred interest expense of $149,000 and $256,000, respectively,
related to the Note.
Included in short-term and long-term debt at December 31, 1999 and 1998,
respectively, are notes relating to the Acquisitions totaling $14,803,000 and
$15,393,000, respectively, which are due to current directors and members of
management. For the years ended December 31, 1999 and 1998, WorldPages.com
recognized interest expense of $768,000 and $709,000, respectively, relating to
these notes.
7. INCOME TAXES
The provision for income tax expense (benefit) related to continuing
operations consisted of the following:
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
(IN THOUSANDS)
Current:.................................................... $ -- $ --
Federal................................................... -- --
------- -------
State..................................................... -- --
------- -------
Deferred:
Federal................................................... (1,230) (5,945)
State..................................................... (235) (514)
------- -------
(1,465) (6,459)
======= =======
Income tax expense (benefit)................................ $(1,465) $(6,459)
======= =======
</TABLE>
F-13
<PAGE>
WORLDPAGES.COM AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
7. INCOME TAXES (CONTINUED)
Significant components of deferred tax assets and liabilities at December 31,
1999 and 1998 were:
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
(IN THOUSANDS)
Deferred tax assets:
Property and equipment depreciation....................... $ 108 $ --
Reserves and accruals..................................... 172 1,273
Net operating loss carryforwards.......................... 16,555 1,222
-------- --------
16,835 2,495
-------- --------
Deferred tax liabilities:
Intangible assets......................................... (10,158) (16,144)
Deferred costs............................................ (1,701) --
Property and equipment depreciation....................... -- (319)
-------- --------
(11,859) (16,463)
-------- --------
Total net deferred tax asset (liability).................. 4,976 (13,968)
Net deferred tax liabilities included in net assets held
for sale................................................ -- 3,490
-------- --------
Net deferred tax asset (liability)........................ $ 4,976 $(10,478)
======== ========
</TABLE>
The benefit for income taxes reconciles to the amount computed by applying
the statutory federal tax rate of 34% as follows:
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
(IN THOUSANDS)
Computed expected tax benefit............................... $(1,643) $(6,031)
Non-deductible goodwill and intangibles..................... 317 332
State income tax benefit.................................... (155) (339)
Loss on sale of KINNET...................................... -- 816
Other....................................................... 16 (44)
Change in valuation allowance............................... -- (1,193)
------- -------
$(1,465) $(6,459)
======= =======
</TABLE>
In assessing the realizability of deferred tax assets, management considers
whether it is more likely than not that some portion, or all of the deferred tax
assets will be realized. The ultimate realization of deferred tax assets is
dependent upon the generation of future taxable income during the period in
which those temporary differences become deductible. Net operating loss
carryforwards of $3,139,000, $518,000 and $39,909,000 expire in 2012, 2018, and
2019, respectively. Management believes that WorldPages.com will generate
sufficient taxable income to absorb all net operating loss carryforwards and
deductible temporary differences prior to their expiration.
F-14
<PAGE>
WORLDPAGES.COM AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
8. STOCK OPTIONS AND WARRANTS
In connection with the Acquisitions and IPO, WorldPages.com issued various
common stock warrants that allow the holder to purchase shares of common stock
at defined exercise prices. As of December 31, 1999 and 1998, 1,674,427 and
1,584,427 of such warrants were issued and outstanding, respectively.
WorldPages.com has an employee incentive stock option plan which allows
WorldPages.com to grant key employees incentive and non-qualified stock options
to purchase up to 3,500,000 shares of WorldPages.com's common stock at not less
than the market price on the date of the grant. Options not exercised accumulate
and are exercisable, in whole or in part, in any subsequent period but not later
than ten years from the date of the grant.
WorldPages.com also has a Non-Employee Director stock option plan, approved
by the stockholders, under which WorldPages.com grants an option to purchase
15,000 shares of common stock to each director who is neither an officer of
WorldPages.com nor compensated under any employment or consulting arrangements
(Non-Employee Director) upon their initial appointment as director and an
additional option to purchase 5,000 shares upon each subsequent re-election to
director. Under the plan, the option exercise price is the fair market value of
WorldPages.com's common stock on the date of the grant, and the options are
exercisable, on a cumulative basis, at 33 1/3% per year commencing on the first
anniversary date of the grant.
A summary of the stock option and warrant transactions under the plans for
the years ended December 31, 1999 and 1998, is as follows:
<TABLE>
<CAPTION>
1999 1998 1997
-------------------- --------------------- --------------------
AVERAGE NUMBER OF AVERAGE NUMBER OF AVERAGE NUMBER OF
PRICE SHARES PRICE SHARES PRICE SHARES
-------- --------- -------- ---------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
Options and warrants outstanding at
beginning of year................. $6.96 3,960,312 $ 8.76 2,288,640 $ -- 0
Options and warrants granted........ $7.50 393,961 $ 9.89 4,116,172 $7.59 2,813,640
Options and warrants exercised...... $4.28 (366,634) $ -- -- $2.50 525,000
Options and warrants canceled....... $5.56 (181,116) $13.57 (2,444,500) $ -- 0
--------- ---------- ---------
Options and warrants outstanding at
end of year....................... $7.34 3,806,523 $ 6.96 3,960,312 $8.76 2,288,640
========= ========== =========
Exercisable at end of year.......... 3,110,826 1,580,377 107,561
========= ========== =========
</TABLE>
F-15
<PAGE>
WORLDPAGES.COM AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
8. STOCK OPTIONS AND WARRANTS (CONTINUED)
Other information regarding stock options and warrants outstanding as of
December 31, 1999, is as follows:
<TABLE>
<CAPTION>
OPTIONS AND
OPTIONS AND WARRANTS OUTSTANDING WARRANTS EXERCISABLE
----------------------------------------------- ----------------------------
REMAINING
RANGE OF EXERCISE NUMBER OF CONTRACTUAL LIFE WEIGHTED AVERAGE NUMBER OF WEIGHTED AVERAGE
PRICE OPTIONS (YEARS) EXERCISE PRICE OPTIONS EXERCISE PRICE
- --------------------------- --------- ---------------- ---------------- --------- ----------------
<S> <C> <C> <C> <C> <C>
$2.50-$4.19................ 630,593 7.6 $ 2.54 537,260 $ 2.52
$4.50-$4.50................ 1,037,000 1.9 $ 4.50 932,793 $ 4.50
$4.67-$6.61................ 879,714 6.8 $ 6.46 601,933 $ 6.40
$6.96-$10.50............... 279,461 6.6 $ 8.32 189,667 $ 7.86
$14.00-$14.00.............. 979,755 5.2 $14.00 849,173 $14.00
--------- --- ------ --------- ------
$2.50-$14.00............... 3,806,523 5.2 $ 7.34 3,110,826 $ 7.32
========= === ====== ========= ======
</TABLE>
WorldPages.com accounts for the option plans using the intrinsic value
method. Under such method, no compensation expense has been recognized relating
to the stock options. Pro forma net earnings and net earnings per common share
in the following table were prepared as if WorldPages.com had accounted for its
stock options and warrants under the fair market value method.
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Net loss--pro forma (in thousands).......................... $9,024 $6,059 $5,972
Net loss per share--pro forma............................... .45 .33 .73
</TABLE>
For the pro forma disclosures, the fair value of each option and warrant
grant is estimated at the date of the grant using an option pricing model with
the following assumptions: no expected dividends, risk-free interest rates of
6.0%, price volatility of 50% and expected lives of four years.
On December 13, 1998, WorldPages.com's Board of Directors approved the
re-pricing of approximately 2,125,000 options granted to key employees with a
weighted-average exercise price of $13.53. Under the terms of the re-pricing,
holders of the affected options received one new option for each two existing
options. The new options have an exercise price of $4.50 per share, which
represents the fair market value of WorldPages.com's stock on December 14, 1998.
In connection with the Acquisitions, WorldPages.com issued warrants to
purchase 756,078 shares of common stock at $6.61 per share and options to
purchase 598,500 shares of common stock at $14.00 per share (the IPO price). The
fair value of these options and warrants was determined to be $4,101,000 on the
date of grant, and was recorded as a component of the purchase price of the
Acquisitions.
During December 1997, WorldPages.com awarded two of its officers ten-year
options to purchase 300,000 shares of common stock at an exercise price of $2.50
per share which vested in full at the end of three months. Additionally, in
May 1997, WorldPages.com granted to one of its consultants a warrant for the
purchase of 7,561 shares of common stock at an exercise price of $2.65 per
share.
F-16
<PAGE>
WORLDPAGES.COM AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
8. STOCK OPTIONS AND WARRANTS (CONTINUED)
During the year ended December 31, 1998 and 1997, WorldPages.com recognized
$1,760,000 and $870,000, respectively, of compensation expense related to these
options and warrants.
9. BENEFIT PLANS
WorldPages.com has a stock purchase plan whereby eligible employees may
elect to invest up to 10% of their salary and WorldPages.com contributes an
amount equal to 15% of each participant's contribution. WorldPages.com also has
a 401(k) plan whereby eligible employees may elect to contribute a portion of
their salary and WorldPages.com contributes an amount equal to 50% of employee
contributions up to 6% of the employee's base salary. WorldPages.com recognized
expense of $482,000 in 1999; $281,000 in 1998; and no expense in 1997 relating
to these plans.
10. LEASES
Certain sales and administrative offices and equipment are leased. The
leases expire at various dates through 2003. Leases that expire are generally
renewed or replaced by similar leases depending on business needs. Rent expense
for operating leases in 1999, 1998, and 1997 was $2,153,000, $1,370,000 and
$48,000, respectively. At December 31, 1999, WorldPages.com's future minimum
rental payments due under noncancelable operating leases were as follows:
$473,000 in 2000; $359,000 in 2001; $206,000 in 2002; $88,000 in 2003; $25,000
in 2004; and $0 thereafter.
11. PREFERRED STOCK
In connection with a strategic alliance with a utility company, which was
consummated with the IPO, WorldPages.com issued 142,857 shares of Series A
Redeemable Convertible Preferred Stock (Preferred Stock) with an aggregate
liquidation preference of $2.0 million. The Preferred Stock was convertible into
a like number of shares of common stock eighteen months after the consummation
of the IPO. In August 1999, the preferred stock was converted by the holder into
142,857 shares of WorldPages.com's common stock. The Preferred Stock did not pay
dividends and its holders were not entitled to vote in the election of
directors.
12. COMMITMENTS AND CONTINGENCIES
In August 1996, one of WorldPages.com's subsidiaries, Valu-Line of
Longview, Inc., entered into a written agreement with MCI Communications
Corporation under which, for a fee, MCI would provide access to Valu-Line so
that Valu-Line could provide services as a long distance carrier. After
execution of the written agreement, service failures by MCI occurred. To address
the service failures and MCI relocation of circuits serving Valu-Line,
representatives of Valu-Line and MCI agreed upon a reduced fee structure and
revised network architecture in order to provide restitution to Valu-Line and to
address the service quality issues. The resulting agreement reflecting the
reduced fee structure was never set forth in writing. Both before and after
WorldPages.com acquired Valu-Line, the payments made under the Valu-Line
contract with MCI were in accordance with the modified agreement. In
April-May 1999, after the acquisition of MCI by WorldCom, Inc., MCI
WorldCom, Inc., as the owner of the successor-in-interest to MCI, took the
position that ACG owed $2.9 million in delinquent amounts under the original
written contract, ignoring the modification to the contract between the parties.
MCI WorldCom and WorldPages.com have agreed to settle this matter in
arbitration.
F-17
<PAGE>
WORLDPAGES.COM AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
12. COMMITMENTS AND CONTINGENCIES (CONTINUED)
Management intends to actively pursue WorldPages.com's rights and defenses in
arbitration. See discussion of subsequent event in Note 15 to the consolidated
financial statements.
In July 1999, Loretta R. Cross, Chapter 7 Trustee for Total National
Telecommunications, Inc., filed an Adversary Proceeding against Lou Zant and
TRI, in the United States Bankruptcy Court for the Southern District of Texas.
The trustee's complaint seeks recovery of $2.6 million from TRI as a fraudulent
conveyance under the Bankruptcy Code. The complaint is based on an October 1,
1996 stock purchase agreement in which Total World Telecommunications, Inc., the
parent of Total National Telecommunications, agreed to purchase all the stock of
NETTouch Communications, Inc., from TRI and Mr. Zant. The trustee's complaint
alleges that Total National Telecommunications provided the funds to Total World
Telecommunications to complete and close the stock purchase and that Total
National Communications never received any consideration for its funds. TRI
intends to vigorously defend the action.
WorldPages.com is party to various legal actions, proceedings and claims
arising in the normal course of business. Some of the foregoing involve, or may
involve, claims for compensatory, punitive or other damages in material amounts.
Litigation is subject to many uncertainties, and it is possible that some of the
legal actions, proceedings and claims referred to above could be decided against
WorldPages.com. WorldPages.com's management believes that any resulting
liability will not materially affect WorldPages.com's financial position,
liquidity or results of operations
13. REPORTABLE SEGMENTS
WorldPages.com considers its directory operations as its only reportable
segment. The directory operations publish and distribute yellow
pages directories in various markets in Oklahoma, Texas and California. Prior to
November 1999, WorldPages.com had reported its telecommunications operations as
another segment. The telecommunications operations provided local, long distance
and other telecommunications services to customers in service areas of
Southwestern Bell and U S West. The different telecommunications services were
aggregated and classified as one reportable segment because they were considered
one segment in assessing performance and allocation of resources. The
telecommunications segment was sold in November 1999 and has been presented as
discontinued operations in the accompanying consolidated financial statements.
The costs associated with WorldPages.com's corporate overhead including, but
not limited to, executive salaries, salaries of shared administrative personnel
and the direct costs of company-wide programs, have been allocated to the
directory operations segment based on management's estimate of those costs
expected to be continuing after the sale of the telecommunications operations.
The administrative costs that will not continue after the sale of the
telecommunications segment have been allocated to the discontinued
telecommunications operations.
F-18
<PAGE>
WORLDPAGES.COM AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
14. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
<TABLE>
<CAPTION>
1ST QUARTER 2ND QUARTER 3RD QUARTER 4TH QUARTER TOTAL
----------- ----------- ----------- ----------- --------
(IN THOUSANDS, EXCEPT PER SHARE INFORMATION)
<S> <C> <C> <C> <C> <C>
1999
- ---------------------------------------
Revenues............................... $ 18,743 $ 14,481 $ 9,113 $ 7,650 $ 49,987
Operating income (loss)................ 3,391 (1,126) (537) (1,869) (141)
Net income (loss) from continuing
operations........................... 1,031 (1,250) (2,181) (967) (3,367)
Net loss from discontinued
operations........................... (7,378) -- -- -- (7,378)
Net loss on sale of discontinued
operations........................... (51,800) -- -- -- (51,800)
Total net loss......................... (58,147) (1,250) (2,181) (967) (62,545)
Net income (loss) per common share from
continuing operations................ 0.05 (0.06) (0.11) (0.05) (0.17)
Net loss per common share from
discontinued operations.............. (0.37) -- -- -- (0.37)
Net loss per common share from sale of
discontinued operations.............. (2.60) -- -- -- (2.60)
Total net loss per share............... (2.93) (0.06) (0.11) (0.05) (3.14)
Common shares used in per share
calculation.......................... 19,859 19,859 19,968 20,134 19,956
</TABLE>
<TABLE>
<CAPTION>
1ST QUARTER 2ND QUARTER 3RD QUARTER 4TH QUARTER TOTAL
----------- ----------- ----------- ----------- --------
(IN THOUSANDS, EXCEPT PER SHARE INFORMATION)
<S> <C> <C> <C> <C> <C>
1998
- ---------------------------------------
Revenues............................... $ 9,183 $ 12,809 $ 8,255 $ 7,843 $ 38,090
Operating income (loss)................ (761) 1,596 (891) (2,139) (2,195)
Net income (loss)...................... (816) 501 (1,295) (2,162) (3,772)
Net loss from discontinued
operations........................... (308) (1,532) (2,396) (3,271) (7,507)
Total net loss......................... (1,124) (1,031) (3,691) (5,433) (11,279)
Net income (loss) per common share from
continuing operations................ (0.05) 0.03 (0.07) (0.11) (0.20)
Net loss per common share from
discontinued operations.............. (0.03) (0.09) (0.12) (0.17) (0.41)
Total net loss per share............... (0.08) (0.06) (0.19) (0.28) (0.61)
Common shares used in per share
calculation.......................... 15,269 19,616 19,616 19,822 18,594
</TABLE>
F-19
<PAGE>
WORLDPAGES.COM AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
15. SUBSEQUENT EVENTS (UNAUDITED)
On February 23, 2000, WorldPages.com completed the acquisitions of YPtel
Corporation, Web YP, Inc. and Big Stuff, Inc. by issuing 19,500,000 shares of
common stock. Also in connection with the transactions, WorldPages.com redeemed
its $15.0 million 5% notes in exchange for 2,864,000 shares of common stock and
refinanced its indebtedness. The new financing consists of $60 million of senior
revolving loan with Bank of America, N.A. and $20 million of 5% convertible
debentures issued to institutional investors led by funds managed by Palladin
Group, L.P. Approximately $53 million of the financing package has been used to
refinance existing indebtedness. The additional $27 million will be used for
working capital needs and other general corporate purposes. The senior revolving
credit facility bears interest at LIBOR plus a spread of 1.5% to 3.5% or the
prime rate plus a spread of up to 1.25% and expires in February 2005. The
convertible debentures, which are due in February 2006, are convertible into
shares of WorldPages.com's common stock at a conversion price of $15.63 per
share, subject to adjustment at the end of every six-month period during the
first two years of the term of the convertible debentures. The holders of the
convertible debentures also received warrants to purchase 572,350 shares of
WorldPages.com's common stock at an exercise price of $18.47 per share. The
convertible debentures also provide for options to issue up to an additional
$10 million of convertible debentures under similar terms and conditions.
Additionally in March 2000, WorldPages.com settled its dispute with MCI
WorldCom, Inc. The settlement did not have a material impact on WorldPages.com's
results of operations or its financial condition.
F-20
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
Pacific Coast Publishing, Inc.
We have audited the accompanying balance sheets of Pacific Coast
Publishing, Inc. (Pacific Coast) as of October 31, 1998 and 1997, and the
related statements of operations, stockholders' equity, and cash flows for each
of the three years in the period ended October 31, 1998. These financial
statements are the responsibility of Pacific Coast's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. 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 Pacific Coast as of
October 31, 1998 and 1997, and the results of its operations and its cash flows
for each of the three years in the period ended October 31, 1998, in conformity
with accounting principles generally accepted in the United States.
ERNST & YOUNG LLP
Seattle, Washington
December 22, 1998
F-21
<PAGE>
PACIFIC COAST PUBLISHING, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
OCTOBER 31,
-------------------------
1998 1997
----------- -----------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents................................... $ 334,426 $ 17,922
Trade accounts receivable, net.............................. 6,275,722 4,999,533
Deferred costs.............................................. 7,271,961 6,892,487
Advances to employees....................................... 105,769 50,770
Prepaid expenses and other.................................. 723,851 382,685
----------- -----------
Total current assets........................................ 14,711,729 12,343,397
Property, plant and equipment, net.......................... 508,463 505,579
Other assets................................................ 313,950 132,381
----------- -----------
Total assets................................................ $15,534,142 $12,981,357
=========== ===========
CURRENT LIABILITIES
Current portion of debt..................................... $ 95,382 $ 585,828
Accounts payable and accrued expenses....................... 1,574,604 1,362,253
Deferred revenue............................................ 2,683,854 2,913,231
Commissions payable......................................... 1,169,261 1,019,448
----------- -----------
Total current liabilities................................... 5,523,101 5,880,760
----------- -----------
Debt, less current portion.................................. 276,224 260,600
----------- -----------
Commitments and contingencies (NOTE 5)
----------- -----------
Total liabilities........................................... 5,799,325 6,141,360
----------- -----------
STOCKHOLDERS' EQUITY
Common stock, $1 par value:
Authorized shares--50,000
Issued and outstanding shares--20,000..................... 20,000 20,000
Additional paid-in capital.................................. 119,269 119,269
Retained earnings........................................... 9,595,548 6,700,728
----------- -----------
Total stockholders' equity.................................. 9,734,817 6,839,997
----------- -----------
Total liabilities and stockholders' equity.................. $15,534,142 $12,981,357
=========== ===========
</TABLE>
SEE ACCOMPANYING NOTES.
F-22
<PAGE>
PACIFIC COAST PUBLISHING, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED OCTOBER 31,
---------------------------------------
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Revenue............................................... $33,165,398 $28,203,972 $24,550,563
Expenses:
Printing, distribution, and listings................ 8,001,467 6,644,443 6,985,299
Sales and marketing................................. 7,301,381 5,700,232 5,612,647
General and administrative.......................... 8,453,878 7,584,901 6,051,042
Provision for bad debts............................. 2,067,085 1,727,532 1,836,185
Depreciation and amortization....................... 170,124 249,245 334,918
Stockholder remuneration............................ 1,646,092 1,717,614 1,834,726
----------- ----------- -----------
Income from operations................................ 5,525,371 4,580,005 1,895,746
Interest (income) expense, net........................ (141,828) 94,625 247,211
Other (income) expense................................ (98,100) 26,113 (63,321)
----------- ----------- -----------
Earnings before income taxes.......................... 5,765,299 4,459,267 1,711,856
Provision for income taxes............................ 86,479 53,988 265,957
----------- ----------- -----------
Net income............................................ $ 5,678,820 $ 4,405,279 $ 1,445,899
=========== =========== ===========
</TABLE>
SEE ACCOMPANYING NOTES.
F-23
<PAGE>
PACIFIC COAST PUBLISHING, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE THREE YEARS ENDED OCTOBER 31, 1998
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL UNREALIZED
------------------- PAID-IN LOSS ON RETAINED
SHARES AMOUNT CAPITAL INVESTMENTS EARNINGS TOTAL
-------- -------- ---------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balances at October 31, 1995... 20,000 $20,000 $119,269 $(20,400) $ 2,181,550 $ 2,300,419
Net income................... -- -- -- -- 1,445,899 1,445,899
Change in unrealized loss on
investments................ -- -- -- (9,120) -- (9,120)
------ ------- -------- -------- ----------- -----------
Balances at October 31, 1996... 20,000 20,000 119,269 (29,520) 3,627,449 3,737,198
Net income................... -- -- -- -- 4,405,279 4,405,279
Cash dividends paid.......... -- -- -- -- (1,332,000) (1,332,000)
Change in unrealized loss on
investments................ -- -- -- 29,520 -- 29,520
------ ------- -------- -------- ----------- -----------
Balances at October 31, 1997... 20,000 20,000 119,269 0 6,700,728 6,839,997
Net income................... -- -- -- -- 5,678,820 5,678,820
Cash dividends paid.......... -- -- -- -- (2,784,000) (2,784,000)
------ ------- -------- -------- ----------- -----------
Balances at October 31, 1998... 20,000 $20,000 $119,269 $ 0 $ 9,595,548 $ 9,734,817
====== ======= ======== ======== =========== ===========
</TABLE>
SEE ACCOMPANYING NOTES.
F-24
<PAGE>
PACIFIC COAST PUBLISHING, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED OCTOBER 31,
------------------------------------------
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Cash received from customers........................ $ 32,154,531 $ 28,268,125 $ 23,373,735
Cash paid to suppliers and employees................ (28,307,682) (24,467,625) (22,820,826)
Investment income received.......................... 241,791 213,119 128,076
Interest paid....................................... (105,449) (333,989) (357,095)
Income taxes paid................................... (53,988) (176,756) (46,797)
------------ ------------ ------------
Net cash provided by operating activities........... 3,929,203 3,502,874 277,093
------------ ------------ ------------
INVESTING ACTIVITIES
Purchases of property, plant and equipment.......... (172,308) (100,876) (177,223)
Cash received on sale of property, plant and
equipment......................................... -- -- 500
Other activities.................................... (181,569) (21,728) (89,151)
------------ ------------ ------------
Net cash used in investing activities............... (353,877) (122,604) (265,874)
------------ ------------ ------------
FINANCING ACTIVITIES
Dividends to stockholders........................... (2,784,000) (1,332,000) --
Proceeds of debt borrowings......................... 125,134 240,736 197,536
Principal payments on debt.......................... (599,956) (2,271,084) (208,755)
------------ ------------ ------------
Net cash used in financing activities............... (3,258,822) (3,362,348) (11,219)
------------ ------------ ------------
Net increase in cash................................ 316,504 17,922 --
Cash at beginning of year........................... 17,922 -- --
------------ ------------ ------------
Cash at end of year................................. $ 334,426 $ 17,922 $ --
============ ============ ============
Reconciliations of net income to net cash provided
by operating activities:
Net income........................................ $ 5,678,820 $ 4,405,279 $ 1,445,899
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for doubtful accounts................. 2,067,085 1,727,532 1,836,185
(Gain) loss on disposal of property, plant and
equipment..................................... (699) 136,830 3,854
Depreciation and amortization................... 170,123 249,245 334,918
Increase in trade accounts receivable........... (3,343,274) (2,492,926) (3,212,581)
Increase in prepaid and deferred costs, and
other assets.................................. (775,639) (1,126,807) (6,416)
Increase in accounts and commissions payable and
accrued expenses.............................. 362,164 225,813 171,409
Increase (decrease) in deferred revenue......... (229,377) 377,908 (296,175)
------------ ------------ ------------
Net cash provided by operating activities........... $ 3,929,203 $ 3,502,874 $ 277,093
============ ============ ============
</TABLE>
SEE ACCOMPANYING NOTES.
F-25
<PAGE>
PACIFIC COAST PUBLISHING, INC.
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 1998
1. NATURE OF BUSINESS
Pacific Coast Publishing, Inc. (Pacific Coast) is in the business of selling
yellow pages advertising and publishing and distributing telephone directories
in selected Arizona, Oregon, Utah, and Washington cities.
During 1998, Pacific Coast's stockholders entered into an agreement to sell
substantially all of the operating assets of Pacific Coast effective
November 1, 1998.
2. SIGNIFICANT ACCOUNTING POLICIES
ACCOUNTS RECEIVABLE AND REVENUE RECOGNITION
Accounts receivable are reflected net of an allowance for doubtful accounts
as of October 31, 1998 and 1997 of $738,230 and $578,030, respectively.
Advertising revenue is recognized when directories containing the customers
advertising are distributed. Advertising revenue billed on directories that have
not been distributed is reported as deferred revenue.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is recorded at cost and is depreciated or
amortized using accelerated methods over the shorter of the lease term or the
estimated useful lives of the assets. Amortization of equipment under capital
leases is included in depreciation.
DEFERRED COSTS
Costs to produce, distribute, and market the directories are initially
capitalized and are expensed only when the directories are distributed in order
to match related expenses with advertising revenue. Costs include all direct
material and commission costs and indirect costs related to production, such as
indirect labor, depreciation, rent, utilities, office expenses and business
taxes, and the portion of the bad debt expense allocated to undistributed
directories. Capitalized production, distribution, and marketing costs of
directories not yet distributed are reported as deferred costs. Deferred costs
consist of the following:
<TABLE>
<CAPTION>
OCTOBER 31,
-----------------------
1998 1997
---------- ----------
<S> <C> <C>
Sales commissions.................................... $4,056,348 $3,798,699
Direct production costs.............................. 330,414 338,055
Indirect production costs............................ 2,885,199 2,755,733
---------- ----------
$7,271,961 $6,892,487
========== ==========
</TABLE>
ADVERTISING COSTS
Pacific Coast expenses advertising when the costs are incurred. Advertising
costs totaled $621,613 in 1998, $520,065 in 1997, and $244,740 in 1996.
F-26
<PAGE>
PACIFIC COAST PUBLISHING, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 31, 1998
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
BARTER TRANSACTIONS
Pacific Coast barters yellow pages advertising in exchange for goods and
services. Sales are recognized at the fair market value of the advertising sold.
Services received are recorded at the same value as the sale. There is no gain
or loss recognized on these trades. Recognition of the revenues and expenses
from trades is the same as for monetary revenues and expenses. Barter
transactions represented 3.4%, 2.9%, and 2.6%, of advertising fees in 1998,
1997, and 1996, respectively.
CONCENTRATION OF CREDIT RISK
Approximately 50% of Pacific Coast's business relates to sales in the state
of Washington. Pacific Coast performs periodic credit evaluations of its
potential customers prior to acceptance and publication and requires deposits by
customers. Pacific Coast provides an allowance for doubtful accounts sufficient
to cover estimated credit losses. Credit losses have consistently been within
management's expectation.
Under a long-term contract that expires in February 2001, Pacific Coast
utilizes one outside vendor to print its yellow pages publications. As security
for payment of production amounts owed under the contract, the vendor has a lien
on all property owned by the vendor in Pacific Coast's possession, including
work-in-process and undelivered work. Production delays or failure by this
vendor to otherwise perform could significantly impact Pacific Coast's
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 amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
RECLASSIFICATIONS
Certain prior year balance sheet amounts and statement of operations amounts
have been reclassified to conform to the October 31, 1998 presentation.
3. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of:
<TABLE>
<CAPTION>
OCTOBER 31,
-----------------------
1998 1997
---------- ----------
<S> <C> <C>
Equipment............................................ $1,848,980 $1,724,150
Furniture and fixtures............................... 89,447 82,919
Vehicles............................................. 107,260 107,260
Leasehold improvements............................... 109,925 109,925
---------- ----------
2,155,612 2,024,254
Less amortization and accumulated depreciation....... 1,647,149 1,518,675
---------- ----------
$ 508,463 $ 505,579
========== ==========
</TABLE>
F-27
<PAGE>
PACIFIC COAST PUBLISHING, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 31, 1998
3. PROPERTY, PLANT AND EQUIPMENT (CONTINUED)
Included in equipment are assets held under capital leases as of
October 31, 1998 and 1997 with a gross amount of $871,139 and $795,602,
respectively. Accumulated amortization as of October 31, 1998 and 1997 on the
capital lease assets totaled $715,247 and $683,286, respectively.
4. DEBT
Debt consists of the following:
<TABLE>
<CAPTION>
OCTOBER 31,
-------------------
1998 1997
-------- --------
<S> <C> <C>
Line of credit.............................................. $ -- $460,546
Note payable to bank in monthly installments of $1,076,
including interest at 9.25% at October 31, 1998. The note
matures in August 2000 and is collateralized by a
vehicle................................................... 21,688 32,059
Notes payable to equipment vendors in aggregate monthly
installments from $1,655 to $4,698, including interest at
9.00% at October 31, 1998. There is one note outstanding
at October 31, 1998, which matures August 2002............ 182,208 230,744
Capital lease obligations................................... 167,710 123,079
-------- --------
371,606 846,428
Less current portion........................................ 95,382 585,828
-------- --------
$276,224 $260,600
======== ========
</TABLE>
Pacific Coast's line of credit agreement with a bank was renewed during 1998
for a two-year period. Pacific Coast is permitted to borrow up to $7,000,000
under the line. Borrowings on the line bear interest at 8.375% as of
October 31, 1998, which is payable monthly. All outstanding principal and unpaid
interest is due at the line's maturity in April 2000, unless the line is
extended.
Borrowings on the line are collateralized by all accounts receivable of
Pacific Coast. In addition, Pacific Coast's stockholders have personally
guaranteed the repayment of the line. The line requires Pacific Coast to meet
certain restrictive covenants, including minimum cash flow coverage and debt to
net worth ratio requirements. As of October 31, 1998, Pacific Coast had
satisfied the covenant requirements.
Future maturities of debt as of October 31, 1998, including capital lease
obligations (see Note 5), are as follows:
<TABLE>
<CAPTION>
YEARS ENDING OCTOBER 31
- -----------------------
<S> <C>
1999........................................................ $ 95,382
2000........................................................ 117,964
2001........................................................ 71,339
2002........................................................ 60,718
2003........................................................ 26,203
--------
$371,606
========
</TABLE>
F-28
<PAGE>
PACIFIC COAST PUBLISHING, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 31, 1998
4. DEBT (CONTINUED)
Interest (income) expense, net, consists of the following:
<TABLE>
<CAPTION>
YEARS ENDED OCTOBER 31,
---------------------------------
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Interest and other investment income........ $(241,791) $(213,119) $(128,076)
Interest expense............................ 99,963 307,744 375,287
--------- --------- ---------
$(141,828) $ 94,625 $ 247,211
========= ========= =========
</TABLE>
5. COMMITMENTS AND CONTINGENCIES
Pacific Coast leases equipment and office space, including its corporate
office space, from a related party (see Note 7). Certain of the leases require
Pacific Coast to pay a portion of the operating costs associated with the leased
property. Future minimum lease payments under capital and operating leases as of
October 31, 1998 are as follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
YEARS ENDING OCTOBER 31, LEASES LEASES
- ------------------------ -------- ----------
<S> <C> <C>
1999.................................................. $ 62,996 $ 838,692
2000.................................................. 74,144 543,255
2001.................................................. 28,107 303,887
2002.................................................. 20,199 211,943
2003.................................................. 27,427 120,000
Thereafter............................................ -- 50,000
-------- ----------
212,873 $2,067,777
==========
Less amount representing interest payments............ 45,163
--------
167,710
Less current portion.................................. 42,336
--------
$125,374
========
</TABLE>
F-29
<PAGE>
PACIFIC COAST PUBLISHING, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 31, 1998
5. COMMITMENTS AND CONTINGENCIES (CONTINUED)
Future lease payments for operating leases include maintenance contract
payments. Rent expense, exclusive of maintenance agreement payments, was
$820,531 in 1998, $746,445 in 1997, and $601,334 in 1996.
As of October 31, 1998, certain asserted legal actions are outstanding
against Pacific Coast, which have arisen in the normal course of business. While
no estimate of loss, if any, which may occur from the settlement of these
actions can be made, it is the opinion of management that the settlement of the
asserted actions will not have a material adverse impact on Pacific Coast's
financial position, operations, or cash flows.
6. INCOME TAXES
Beginning with the year ended October 31, 1996, Pacific Coast elected S
corporation status for federal income tax reporting purposes. As a result,
Pacific Coast is generally not subject to federal income tax, and the
stockholders separately report their respective pro rata shares of Pacific
Coast's income, deductions, and losses on their personal income tax returns.
Pacific Coast remains subject to various state income taxes.
The provision for income taxes consists of:
<TABLE>
<CAPTION>
YEARS ENDED OCTOBER 31,
------------------------------
1998 1997 1996
------- -------- --------
<S> <C> <C> <C>
Federal income taxes at statutory rates........ $ -- $ -- $ --
Internal Revenue Service audit assessment for
prior years.................................. -- -- 154,702
Various state income taxes payable............. 86,479 53,988 18,213
------- -------- --------
Current portion................................ 86,479 53,988 172,915
Deferred taxes................................. -- -- 93,042
------- -------- --------
$86,479 $ 53,988 $265,957
======= ======== ========
</TABLE>
Deferred taxes arose principally due to current temporary timing differences
related to the allowance for doubtful accounts and vacation accruals.
7. RELATED-PARTY TRANSACTIONS
Pacific Coast leases corporate office space in a building that is owned by a
corporation whose sole stockholders are Pacific Coast's two stockholders. Rents
paid to the related corporation were $412,688 in 1998, $402,144 in 1997, and
$382,289 in 1996. Pacific Coast, as well as the stockholders, is a guarantor for
a bank loan to the related corporation. As of October 31, 1998, the outstanding
balance on the guaranteed bank loan was $118,236.
F-30
<PAGE>
PACIFIC COAST PUBLISHING, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 31, 1998
7. RELATED-PARTY TRANSACTIONS (CONTINUED)
Total stockholder remuneration was as follows:
<TABLE>
<CAPTION>
YEARS ENDED OCTOBER 31,
------------------------------------
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Salaries................................. $1,560,000 $1,600,000 $1,800,000
Bonuses.................................. 86,092 117,614 34,726
---------- ---------- ----------
$1,646,092 $1,717,614 $1,834,726
========== ========== ==========
</TABLE>
8. 401(k) PLAN
Pacific Coast has a 401(k) plan that covers substantially all employees
meeting certain requirements. Company contributions to the Plan are
discretionary and are determined by the Board of Directors. Contributions
totaled $134,000 in 1998, $112,000 in 1997, and $88,100 in 1996.
F-31
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
YPtel Corporation
We have audited the accompanying consolidated balance sheet of YPtel
Corporation ("YPtel") as at October 31, 1999, and the related consolidated
statements of income, shareholders' equity, and cash flows for the year then
ended. These financial statements are the responsibility of YPtel'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 auditing standards generally
accepted in the United States. 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 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 YPtel as at
October 31, 1999, and the results of its operations and its cash flows for the
year then ended in conformity with accounting principles generally accepted in
the United States.
Ernst & Young LLP
Toronto, Canada,
January 31, 2000.
F-32
<PAGE>
YPTEL CORPORATION
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS OF U.S. DOLLARS, EXCEPT SHARE DATA)
OCTOBER 31, 1999
<TABLE>
<S> <C>
ASSETS
Current assets:
Cash...................................................... $ 81
Trade accounts receivable, net............................ 11,736
Recoverable income taxes.................................. 547
Deferred production expenses.............................. 7,585
Reimbursable merger costs................................. 641
Advances to employees..................................... 83
Prepaid expenses and other................................ 1,409
-------
Total current assets........................................ 22,082
Property and equipment, net................................. 658
Intangible assets, net...................................... 38,492
Deferred financing costs, net............................... 1,668
-------
Total assets................................................ $62,900
=======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Borrowings on revolving credit facility................... $ 2,983
Current portion of long-term debt......................... 2,341
Accounts payable and accrued expenses..................... 2,906
Interest payable.......................................... 836
Deferred revenue.......................................... 1,333
Commissions payable....................................... 1,273
-------
Total current liabilities................................... 11,672
Long-term debt, less current portion........................ 35,283
Long-term interest payable.................................. 140
Deferred income taxes....................................... 816
-------
47,911
-------
Commitments and contingencies (NOTES 6, 7, AND 8)
Shareholder's equity:
Authorized:
Unlimited common shares
Issued:
13,549,300 common shares................................ 13,280
Warrants................................................ 500
Retained earnings......................................... 1,209
-------
Total shareholders' equity.................................. 14,989
-------
Total liabilities and shareholders' equity.................. $62,900
=======
</TABLE>
See accompanying notes.
F-33
<PAGE>
YPTEL CORPORATION
CONSOLIDATED STATEMENT OF INCOME
(IN THOUSANDS OF U.S. DOLLARS)
YEAR ENDED OCTOBER 31, 1999
<TABLE>
<S> <C>
Revenue..................................................... $41,162
-------
Expenses:
Printing, distribution, and listings...................... 9,482
Sales and marketing....................................... 8,421
General and administrative................................ 11,903
Bad debts expense......................................... 2,779
Depreciation and amortization............................. 2,272
Terminated IPO costs...................................... 363
-------
35,220
-------
Income from operations...................................... 5,942
Other income (expense):
Interest, net............................................. (3,930)
Other..................................................... 13
-------
(3,917)
-------
Income before income taxes.................................. 2,025
Provision for income taxes.................................. 816
-------
Net income.................................................. $ 1,209
=======
</TABLE>
See accompanying notes
F-34
<PAGE>
YPTEL CORPORATION
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(IN THOUSANDS OF U.S. DOLLARS, EXCEPT SHARE DATA)
YEAR ENDED OCTOBER 31, 1999
<TABLE>
<CAPTION>
COMMON SHARES
--------------------- RETAINED
SHARES AMOUNT WARRANTS EARNINGS TOTAL
---------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Balance at November 1, 1998.................. 1 -- -- -- --
Net income................................... -- -- -- $1,209 $ 1,209
Issuance of common shares, net of issuance
costs of $280.............................. 13,549,299 $13,280 -- -- 13,280
Issuance of warrants......................... -- -- $500 -- 500
---------- ------- ---- ------ -------
Balance at October 31, 1999.................. 13,549,300 $13,280 $500 $1,209 $14,989
========== ======= ==== ====== =======
</TABLE>
See accompanying notes
F-35
<PAGE>
YPTEL CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS OF U.S. DOLLARS)
YEAR ENDED OCTOBER 31, 1999
<TABLE>
<S> <C>
OPERATING ACTIVITIES
Net income.................................................. $ 1,209
Adjustments to reconcile net income to net cash used in
operating activities
Bad debts expense......................................... 2,779
Depreciation and amortization............................. 2,272
Amortization of deferred financing costs.................. 335
Accretion of debt discount................................ 64
Deferred income taxes..................................... 816
Changes in operating assets and liabilities:
Increase in trade accounts receivable................... (8,288)
Increase in recoverable income taxes.................... (547)
Increase in deferred production and prepaid expenses,
advances to employees
and other assets...................................... (925)
Increase in reimbursable merger costs................... (641)
Increase in accounts, interest, and commissions payable
and accrued expenses................................... 1,777
Decrease in deferred revenue............................ (1,351)
--------
Net cash used in operating activities....................... (2,500)
--------
INVESTING ACTIVITIES
Acquisition of the net assets of Pacific Coast Publishing,
Inc., net of cash acquired................................ (11,029)
Purchases of property and equipment......................... (339)
--------
Net cash used in investing activities....................... (11,368)
--------
FINANCING ACTIVITIES
Proceeds from revolving credit facility borrowings.......... 2,983
Principal payments on long-term debt........................ (811)
Deferred financing costs.................................... (2,003)
Net proceeds from issuance of common shares and warrants.... 13,780
--------
Net cash provided by financing activities................... 13,949
--------
Net increase in cash........................................ 81
Cash, beginning of year..................................... --
--------
Cash, end of year........................................... $ 81
========
</TABLE>
See accompanying notes.
F-36
<PAGE>
YPTEL CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS (CONTINUED)
(IN THOUSANDS OF U.S. DOLLARS)
YEAR ENDED OCTOBER 31, 1999
<TABLE>
<S> <C>
SUPPLEMENTAL INFORMATION
Interest paid............................................... $ 3,599
-------
Income taxes paid........................................... $ 547
-------
NONCASH ACTIVITIES
In connection with the acquisition of the
net assets of Pacific Coast Publishing, Inc.,
YPtel acquired assets with a fair value
of and assumed liabilities as follows:
Assets acquired......................................... $55,415
Liabilities assumed..................................... 44,371
-------
Net assets acquired......................................... $11,044
=======
Issuance of debt in connection with the acquisition
of the net assets of Pacific Coast Publishing, Inc........ $36,500
-------
Equipment acquired pursuant to capital lease obligations.... $ 42
-------
Net prepaid assets acquired through barter transactions..... $ 333
-------
</TABLE>
See accompanying notes.
F-37
<PAGE>
YPTEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 1999
1. NATURE OF BUSINESS
YPtel Corporation (YPtel) was incorporated on July 22, 1998 under the laws
of Canada. YPtel's wholly owned subsidiary, YPtel, Inc. and its wholly owned
subsidiary, Pacific Coast Publishing, Ltd. (PCPL), were incorporated under the
laws of the state of Washington on October 1, 1998 and September 1, 1998,
respectively. All of the companies had nominal assets and operations until
November 1, 1998.
Effective November 1, 1998, YPtel acquired substantially all of the assets
and liabilities of the yellow pages publishing business of Pacific Coast
Publishing, Inc. (PCPI) (see Note 3). PCPI sold yellow page advertising and
published and distributed telephone directories in selected cities located in
the states of Arizona, Oregon, Utah, and Washington. YPtel, through PCPL, has
continued this business in the same four states since the acquisition of PCPI.
Effective October 26, 1999, YPtel's Board of Directors approved an agreement
to effect the acquisitions of YPtel, Web YP, Inc. and Big Stuff, Inc. by
Advanced Communications Group, Inc. ("ACG") in exchange for shares of ACG. ACG
is in a business similar to YPtel. The completion of the transactions is subject
to satisfactory refinancing of ACG, shareholder approvals, and regulatory
approvals. The transactions are expected to be completed during the first
quarter of calendar year 2000, at which time the name of ACG is to be changed to
WorldPages.com, Inc.
2. SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The accompanying financial statements include the accounts of YPtel and its
wholly-owned subsidiaries. All significant intercompany balances and
transactions have been eliminated in consolidation.
ACCOUNTS RECEIVABLE AND REVENUE RECOGNITION
Accounts receivable are reflected net of an allowance for doubtful accounts
(of $1.7 million as of October 31, 1999).
Advertising revenue is recognized when directories containing the customers'
advertising are distributed. Advertising revenue billed on directories that have
not been distributed, but for which a deposit has been received, is shown as
deferred revenue.
PROPERTY AND EQUIPMENT
Property and equipment is recorded at cost and is depreciated or amortized
using accelerated methods over the shorter of the lease term or the estimated
useful lives of the assets. Amortization of equipment under capital leases is
included in depreciation.
F-38
<PAGE>
YPTEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 31, 1999
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
DEFERRED PRODUCTION EXPENSES
Deferred production expenses include costs to produce, distribute, and
market directories. Deferred costs are expensed when the directories are
distributed. Deferred production expenses consist of the following at
October 31, 1999 (in thousands):
<TABLE>
<S> <C>
Sales commissions........................................... $4,123
Direct production costs..................................... 104
Indirect production costs................................... 3,358
------
7,585
======
</TABLE>
INTANGIBLE ASSETS
Intangible assets consist of customer lists, a covenant not to compete, and
goodwill. Customer lists, the covenant not to compete, and goodwill are
amortized on a straight-line basis over their estimated useful lives of 10, 5,
and 30 years, respectively.
Long-lived assets, including intangibles, are reviewed for impairment
whenever events or changes in circumstances indicate that the carrying amount of
an asset may not be recoverable. Recoverability of assets to be held and used is
measured by a comparison of the carrying amount of an asset to future net cash
flows expected to be generated by the asset. If such assets are considered to be
impaired, the impairment loss to be recognized is measured by the amount by
which the carrying amount of the assets exceed the fair value of the assets.
DEFERRED FINANCING COSTS
Financing costs, totaling approximately $2 million, have been deferred and
are being amortized to interest expense over the respective debt terms, using
the straight-line method, which approximates the interest method. Accumulated
amortization on deferred financing costs totaled $335,000 at October 31, 1999.
ADVERTISING COSTS
Advertising is expensed when the costs are incurred. Advertising costs
totalled $398,000 in 1999.
INCOME TAXES
Income taxes are provided for using the liability method. Deferred tax
assets and liabilities are determined based on differences between the financial
reporting and tax bases of assets and liabilities and are measured using tax
rates that will be in effect when the differences are expected to reverse.
BARTER TRANSACTIONS
Certain yellow page advertising is bartered in exchange for goods and
services. These barter transactions are recognized at the estimated fair value
of the advertising sold in accordance with
F-39
<PAGE>
YPTEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 31, 1999
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Financial Accounting Standards Board (FASB) Statement of Financial Accounting
Standards (SFAS) No. 29, "Accounting for Non-monetary Transactions".
Barter transactions represented 2.4% of advertising revenue in 1999. Amounts
for goods or services due from customers are recorded in prepaid expenses and
other. These amounts totalled $988,000 at October 31, 1999. No allowance for
doubtful accounts has been established against these accounts in either year as
management considers the related amounts to be fully realizable in all material
respects.
FAIR VALUE OF FINANCIAL INSTRUMENTS
Financial instruments include cash, trade receivables, accounts payable, and
long-term debt. The carrying amounts of the financial instruments classified as
current assets and liabilities approximate their fair values because of their
short-term nature. The fair value of long-term debt, which is estimated using
discounted cash flow analyses based on current incremental borrowing rates,
approximates the carrying amounts of the related debt issues.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In March 1998, the American Institute of Certified Public Accountants
(AICPA) issued Statement of Position (SOP) 98-1, "Accounting for the Costs of
Computer Software Development or Obtained for Internal Use". SOP 98-1 requires
the capitalization of certain costs incurred in connection with developing or
obtaining internal-use software, and is effective for financial statements for
fiscal years beginning after December 15, 1998, with adoption required on a
prospective basis. There was no material effect on YPtel's consolidated
financial position, results of operations, or cash flows upon the adoption of
SOP 98-1.
In April 1998, the AICPA issued SOP 98-5, "Reporting on the Costs of
Start-Up Activities". SOP 98-5 provides guidance on the financial reporting of
start-up costs and organization costs, and is effective for fiscal years
beginning after December 15, 1998. SOP 98-5 requires retroactive adoption and
provides for costs of start-up activities and organization costs to be expensed
as incurred. There was no material effect on YPtel's consolidated financial
position, results of operations, or cash flows upon the adoption of SOP 98-5.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities", which is required to be adopted in years
beginning, after June 15, 1999. YPtel will adopt SFAS No. 133 effective
November 1, 2000. SFAS No. 133 requires YPtel to recognize its interest rate
swap on the balance sheet at fair value. Management has not yet determined the
effect of the adoption of SFAS No. 133 on YPtel's future financial statements.
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 amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
F-40
<PAGE>
YPTEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 31, 1999
3. BUSINESS ACQUISITION
Effective November 1, 1998, YPtel acquired substantially all of the assets
and assumed substantially all of the liabilities of PCPI for approximately
$50 million. YPtel financed the acquisition through the issuance of a
$2 million note payable, and shares of its Class A preferred stock which were
later redeemed for approximately $48 million. The redemption price was funded
from $13.2 million in common share equity, $11.0 million in Senior Term Notes
and $14.5 million in Subordinated Notes. YPtel accounted for the acquisition
using the purchase method of accounting, with the operations of PCPI included in
its operations from the date of acquisition.
4. INTANGIBLE ASSETS
Intangible assets at October 31, 1999, consist of the following (in
thousands):
<TABLE>
<S> <C>
Covenant not to compete..................................... $ 1,000
Customer lists.............................................. 9,000
Goodwill.................................................... 30,612
-------
40,612
Less amortization........................................... (2,120)
-------
$38,492
=======
</TABLE>
5. PROPERTY AND EQUIPMENT
Property and equipment consists of the following at October 31, 1999 (in
thousands):
<TABLE>
<S> <C>
Equipment................................................... $ 569
Furniture and fixtures...................................... 120
Vehicles.................................................... 13
Leasehold improvements...................................... 108
-----
810
Less amortization........................................... (152)
-----
$ 658
=====
</TABLE>
Included in equipment are assets held under capital leases at October 31,
1999 with a cost of $198,000 and accumulated amortization of $52,000.
Depreciation and amortization expense on property and equipment totaled
$152,000 in 1999.
6. REVOLVING CREDIT FACILITY
The holders of the senior term notes (see Note 7) provided an $8.5 million
revolving credit facility to PCPL under the terms of a Revolving Credit
Agreement that expires in October 2003. PCPL is permitted to draw under the
Revolving Credit Agreement up to 85% of eligible accounts receivable by the
issuance of revolving credit notes. The revolving credit notes are repayable on
demand. At October 31, 1999, PCPL had borrowed $2.8 million under the Revolving
Credit Agreement. Interest on
F-41
<PAGE>
YPTEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 31, 1999
6. REVOLVING CREDIT FACILITY (CONTINUED)
outstanding revolving credit notes is due monthly at the prime rate plus an
additional interest percentage ranging from 1.25% to 2.25%, or at the London
Interbank Offered Rate (LIBOR) plus an additional interest percentage ranging
from 2.25% to 3.25%. At October 31, 1999, the revolving credit notes bore
interest at 9.75%. In addition, PCPL is required to pay on a quarterly basis a
commitment fee on the unused portion of the revolving credit facility that
ranges from 0.37% to 0.625%.
The Revolving Credit Agreement requires PCPL to meet certain financial
ratios and covenants. As of October 31, 1999, management believes that all
covenant and ratio requirements have been satisfied.
7. LONG-TERM DEBT
Long-term debt consists of the following at October 31, 1999 (in thousands):
<TABLE>
<S> <C>
Senior term notes........................................... $24,750
Subordinated notes (net of unamortized debt discount of
$436)..................................................... 10,564
PCPI shareholders note...................................... 2,000
Other....................................................... 310
-------
37,624
Less current portion........................................ (2,341)
-------
$35,283
=======
</TABLE>
SENIOR TERM NOTES
Under its Senior Term Note Purchase Agreement, PCPL issued an aggregate of
$25.5 million of senior term notes, of which $11 million is in the form of
Senior Term A Notes and $14.5 million is in the form of Senior Term B Notes. In
both cases, the senior term notes were issued to a syndicate of commercial
lenders.
The Senior Term A Notes bear interest, at PCPL's option, at the prime rate
plus an additional interest percentage ranging from 1.50% to 2.50%, or at LIBOR
plus an additional interest percentage ranging from 2.50% to 3.50%. The Senior
Term B Notes bear interest, at PCPL's option, at the prime rate plus an
additional interest percentage ranging from 2.25% to 3.25%, or at LIBOR plus an
additional interest percentage ranging from 3.25% to 4.25%. The additional prime
rate and LIBOR interest percentages are recomputed each fiscal quarter, based on
the ratio of senior debt to cash flow as defined in the Senior Term Note
Purchase Agreement. At October 31, 1999, the Senior Term A and B Notes bore
LIBOR interest at 8.245% and 8.995%, respectively. Interest on the senior term
notes is due quarterly for the prime rate portion and at the end of each
contract for the LIBOR portion.
The Senior Term A and B Notes are due in October 2003 and 2005,
respectively. Principal payments on the Senior Term A and B Notes are due
quarterly and range in the aggregate from $250,000 in 1999 to $1,938,000 in
2005.
F-42
<PAGE>
YPTEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 31, 1999
7. LONG-TERM DEBT (CONTINUED)
SUBORDINATES NOTES
Pursuant to a Subordinated Loan Agreement, PCPL issued to a commercial
lender an aggregate of $11 million face value of subordinated notes due in
May 2006 at a discounted amount of $10.5 million. The Subordinated Loan
Agreement contains provisions by which the subordinated noteholders have
subordinated their claims against PCPL to the claims of the holders of the
senior term and revolving credit notes.
The subordinated notes bear interest at 12% per annum, payable semi-annually
on May 1 and November 1. Subject to the restrictions in the Senior Term Note
Purchase Agreement, the subordinated notes may be repaid in whole or in part
(subject to a minimum principal prepayment of $100,000) in a multiple of
$100,000 at any time and from time to time without notice or bonus.
In connection with the issue of the Subordinated Notes, warrants with a
carrying amount of $500,000 were issued to the lender. The warrants entitle the
lender to purchase an aggregate of 1,841,000 Class C shares at a price of $0.01
per share on or before the earlier of (i) November 1, 2008 and (ii) the date
which is six years following the date on which the Subordinated Notes are
repaid. The warrants are to be exercised as part of the transaction with ACG.
PCPI SHAREHOLDERS NOTE
The $2 million promissory note payable to the former PCPI shareholders is
due in October 2001 and bears interest at 7% per annum. Both principal and
interest are payable upon maturity. At October 31, 1999, interest payable
totaled $140,000. This note may be extended at the option of YPtel to
October 2006, according to certain terms and conditions.
OTHER MATTERS
Substantially all assets of PCPL are provided as collateral under the
various debt agreements. In addition, the various debt agreements require PCPL
to meet certain financial ratios and covenants, including a minimum net worth of
not less than $11.5 million at October 31, 1999. As of October 31, 1999,
management believes that all covenant and ratio requirements have been
satisfied.
Future maturities of debt as of October 31, 1999, excluding unamortized debt
discount, are as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31
- ---------------------
<S> <C>
2000..................................................... $ 2,341
2001..................................................... 4,584
2002..................................................... 3,076
2003..................................................... 4,522
2004..................................................... 4,758
Thereafter............................................... 18,779
-------
$38,060
=======
</TABLE>
F-43
<PAGE>
YPTEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 31, 1999
7. LONG-TERM DEBT (CONTINUED)
Interest income (expense) consists of the following (in thousands):
<TABLE>
<S> <C>
Interest and other investment income........................ $ 291
Interest expense............................................ (4,221)
-------
$(3,930)
=======
</TABLE>
All of PCPL's debt facilities are to be refinanced as a condition of closing
of the transactions with ACG.
8. COMMITMENTS AND CONTINGENCIES
LEASES
YPtel leases equipment and office space. Certain of the leases require YPtel
to pay a portion of the operating costs associated with the leased property and
contain renewal and rent escalation clauses. Future minimum lease payments under
leases as of October 31, 1999 are as follows (in thousands):
<TABLE>
<CAPTION>
CAPITAL OPERATING
YEAR ENDING OCTOBER 31 LEASES LEASES
- ---------------------- -------- ---------
<S> <C> <C>
2000...................................................... $ 67 $1,192
2001...................................................... 51 1,077
2002...................................................... 44 908
2003...................................................... 31 766
2004...................................................... 10 248
------- ------
203 $4,191
======
Less amount representing interest payments................ (61)
-------
142
Less current portion...................................... (45)
-------
$ 97
=======
</TABLE>
Future lease payments for operating leases include maintenance contract
payments. Rent expense, pursuant to operating leases, exclusive of maintenance
agreement payments, was $1,192,000 in 1999.
LABOR RELATIONS
Union certification has been granted to sales personnel at three of PCPL's
offices in Washington. PCPL is currently negotiating a collective bargaining
agreement with the Communication Workers of America for these employees, who
comprise approximately 11% of PCPL's total workforce.
F-44
<PAGE>
YPTEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 31, 1999
9. INCOME TAXES
The provision for income tax expense consists of the following (in
thousands):
<TABLE>
<S> <C>
Current..................................................... $
Federal................................................... --
State..................................................... --
-----
Deferred
Federal................................................... 706
State..................................................... 110
-----
816
-----
$ 816
=====
</TABLE>
The provision for income taxes differs from the amount of tax determined by
applying the federal statutory rate for the following reasons (dollars in
thousands):
<TABLE>
<CAPTION>
AMOUNT PERCENTAGE
-------- ----------
<S> <C> <C>
Tax provision at federal statutory rate................... $687 34%
Permanent differences..................................... 37 2
State income taxes........................................ 110 5
Other, net................................................ $(18) (1)
---- --
$816 40%
==== ==
</TABLE>
Significant components of deferred taxes at October 31, 1999 are as follows
(in thousands):
<TABLE>
<S> <C>
Deferred tax assets:
Bad debt allowance........................................ $ (116)
Accrued salaries.......................................... (90)
Net operating loss carryforward........................... (339)
-------
(545)
-------
Deferred tax liabilities:
Intangible amortization................................... 220
Sales commissions......................................... 1,141
-------
1,361
-------
$ 816
=======
</TABLE>
At October 31, 1999, PCPL had a net operating loss carryforward for federal
income tax purposes of approximately $900,000, which begins to expire in 2014.
Pursuant to applicable regulations in effect under the Internal Revenue Code,
PCPL's use of the net operating loss incurred may be limited during the
carryforward period due to ownership changes now being contemplated with the ACG
transactions. To the extent that any single-year loss is not utilized to the
full extent due to the limitation, the unused
F-45
<PAGE>
YPTEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 31, 1999
9. INCOME TAXES (CONTINUED)
loss is carried over to subsequent years until the earlier of its utilization or
the expiration of the relevant carryforward period.
10. TRANSACTIONS RELATED TO ACG
The cost of YPtel's terminated initial public offering (IPO), which totaled
$363,000, are reflected separately in operating expense. The IPO was terminated
in favour of pursuing a transaction with ACG.
Costs associated with the ACG transactions, totaling $641,000 have been
capitalized and reflected in the accompanying balance sheet as "Reimbursable
merger costs." Upon closing of the ACG transactions, all costs incurred in
connection therewith will be reimbursed by ACG. YPtel's management believes that
the transactions with ACG will be consummated. If the transactions are not
consummated, the costs will be charged against YPtel's operations in the period
the transactions are terminated.
11. 401(k) PLAN
PCPL has continued the sponsorship of PCPI's 401(k) plan that covers
substantially all employees meeting certain eligibility requirements. PCPL's
contributions to the 401(k) plan continue to be discretionary. PCPL's
contributions totaled $135,000 in 1999.
12. CREDIT RISK
Approximately 50% of YPtel's business relates to PCPL's sales in the state
of Washington. PCPL performs periodic credit evaluations of its existing
potential customers prior to acceptance and publication and requires deposits by
customers. PCPL has established an allowance for doubtful accounts to compensate
for exposure risk. Credit losses have consistently been within management's
expectations.
Under a long-term contract that expires in February 2001, PCPL utilized
Quebecor Printing to print its yellow pages publications. As security for
payment of production amounts owed under the contract, Quebecor Printing has a
lien on PCPL's work-in-process and undelivered work. Production delays or
failure by this vendor to otherwise perform could significantly impact PCPL's
operations.
The interest rates on PCPL's senior notes and on its revolving credit
facility are floating and will fluctuate based on changes in the prevailing
prime rate or LIBOR. These interest rates change usually monthly or bi-monthly.
The interest rate on the senior notes, which is currently approximately 8.5%, is
not capped. To mitigate the risks related to fluctuation in interest rates, PCPL
has entered into an interest rate cap program with Dresdner Bank. This program
caps at 7.0%, the base LIBOR rate on 50% of the principal amount of the senior
notes. The interest PCPL pays on the senior notes consists of the base LIBOR
rate, which is currently 5.3%, plus a variable margin. There is no cap on the
interest rate payable on PCPL's revolving credit facility. The interest
differential to be paid or received is recognized over the life of the agreement
as an adjustment to interest expenses. PCPL is exposed to credit loss in the
event of nonperformance by the counterparty to the interest rate swap agreement,
but it does not anticipate nonperformance by the counterparty. At October 31,
1999, the notional amount under the interest rate swap agreement was
$13 million.
F-46
<PAGE>
YPTEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 31, 1999
12. CREDIT RISK (CONTINUED)
YPtel does not use derivative financial instruments for hedging,
speculative, or trading purposes. PCPL is dependent upon outside suppliers for
all of its raw material costs associated with publishing the printed yellow
pages directories. PCPL's principal raw material is paper, which PCPL purchases
either through a broker or directly from its printer. PCPL does not purchase
paper directly from the paper mills. Certain commodity grades of paper,
including the directory-grade paper PCPL uses, have shown considerable price
volatility.
PCPL's sales, expenditures, debt servicing, and capital purchasing are
transacted in U.S. dollars, with an insignificant portion of expenses being
transacted in Canadian dollars. Accordingly, PCPL is not significantly exposed
to foreign currency risk.
F-47
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Web YP, Inc.
We have audited the accompanying balance sheets of Web YP, Inc. as of
December 31, 1999 and 1998 and the related statements of operations,
stockholders' deficit 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, the financial statements referred to above present fairly,
in all material respects, the financial position of Web YP, Inc. as of
December 31, 1999 and 1998, and the results of its operations and its cash flows
for the years then ended, in conformity with generally accepted accounting
principles.
KPMG LLP
February 4, 2000
Houston, Texas
F-48
<PAGE>
WEB YP, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1999 1998
----------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 17,800 $ 107,260
Accounts receivable (net of allowance of $19,376 in 1999
and $0 in 1998)......................................... 251,813 142,473
Prepaid expenses and other current assets................. 635,555 57,292
----------- -----------
Total current assets.................................... 905,168 307,025
Furniture and office equipment, net of accumulated
depreciation of $68,736 and $3,870, respectively.......... $ 192,314 $ 36,934
----------- -----------
Total assets............................................ $ 1,097,482 $ 343,959
=========== ===========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable and accrued liabilities.................. $ 158,660 $ 15,256
Deferred revenues......................................... 464,592 467,713
Due to related parties.................................... 224,344 --
Notes payable to shareholders............................. 3,653,325 --
----------- -----------
Total current liabilities................................... 4,500,921 482,969
----------- -----------
Commitments and contingencies
Stockholders' deficit:
Common stock, no par value: 10,000 shares authorized;
6,086 shares issued and outstanding..................... -- --
Additional paid-in capital................................ 2,782,834 1,528,850
Accumulated deficit....................................... (6,186,273) (1,667,860)
----------- -----------
Total stockholders' deficit............................. (3,403,439) (139,010)
----------- -----------
Total liabilities and stockholders' deficit............. $ 1,097,482 $ 343,959
=========== ===========
</TABLE>
See accompanying notes to financial statements.
F-49
<PAGE>
WEB YP, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------
1999 1998
----------- ------------
<S> <C> <C>
Revenues.................................................... $ 850,818 $ 383,678
Operating costs:
Selling and Internet expenses............................. 3,856,570 753,202
Selling, general and administrative expenses.............. 1,271,137 1,231,799
Depreciation and amortization............................. 98,199 50,870
----------- ------------
Loss from operations...................................... (4,375,088) (1,652,193)
Other income (expense):
Interest expense.......................................... 143,325 --
----------- ------------
Loss before income taxes.................................... (4,518,413) (1,652,193)
Income tax expense (benefit)................................ -- --
----------- ------------
Net loss.................................................... $(4,518,413) $ (1,652,193)
=========== ============
Basic and diluted loss per share............................ $ (742.43) $ (271.47)
=========== ============
Weighted average common shares outstanding.................. 6,086 6,086
=========== ============
</TABLE>
See accompanying notes to financial statements.
F-50
<PAGE>
WEB YP, INC.
STATEMENTS OF STOCKHOLDERS' DEFICIT
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL TOTAL
------------------- PAID-IN ACCUMULATED STOCKHOLDERS'
SHARES AMOUNT CAPITAL DEFICIT DEFICIT
-------- -------- ---------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1997............... 6,086 $ -- $ 141,000 $ (15,667) $ 125,333
Net loss................................. -- -- -- (1,652,193) (1,652,193)
Capital contributions.................... -- -- 1,387,850 -- 1,387,850
----- ---- ---------- ----------- -----------
Balance, December 31, 1998............... 6,086 $ -- $1,528,850 $(1,667,860) $ (139,010)
Net loss................................. -- -- -- (4,518,413) (4,518,413)
Capital contributions.................... -- -- 1,253,984 -- 1,253,984
----- ---- ---------- ----------- -----------
Balance, December 31, 1999............... 6,086 $ -- $2,782,834 $(6,186,273) $(3,403,439)
===== ==== ========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
F-51
<PAGE>
WEB YP, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
-------------------------------
1999 1998
-------------- --------------
<S> <C> <C>
Cash flows from operating activities:
Net loss.................................................. $(4,518,413) $(1,652,193)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization........................... 98,199 50,870
Changes in operating assets and liabilities:
Decrease (increase) in:
Accounts receivable, net............................ (109,340) (142,473)
Prepaid expenses and other current assets........... (611,596) (1,736)
Increase (decrease) in:
Accounts payable and accrued liabilities............ 143,404 15,256
Deferred revenues................................... (3,121) 467,713
----------- -----------
Net cash used in operating activities............... (5,000,867) (1,262,563)
----------- -----------
Cash flows from investing activities:
Additions to furniture and office equipment............... (220,246) (18,027)
----------- -----------
Net cash used in investing activities............... (220,246) (18,027)
----------- -----------
Cash flows from financing activities:
Capital contributions..................................... 1,253,984 1,387,850
Proceeds from notes payable to shareholders............... 3,653,325 --
Increase in due to related parties........................ 224,344 --
----------- -----------
Net cash provided by financing activities........... 5,131,653 1,387,850
----------- -----------
Net increase (decrease) in cash and
cash equivalents.................................. $ (89,460) $ 107,260
Cash and cash equivalents--beginning of year................ 107,260 --
----------- -----------
Cash and cash equivalents--end of year...................... $ 17,800 $ 107,260
=========== ===========
Supplemental cash flows information:
Cash paid for interest.................................... $ -- $ --
=========== ===========
Cash paid for income taxes................................ $ -- $ --
=========== ===========
</TABLE>
See accompanying notes to financial statements.
F-52
<PAGE>
WEB YP, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1999 AND 1998
1. BASIS OF PRESENTATION
Web YP, Inc. (Web YP) is a California-based company founded in September
1997. Operations at Web YP began in 1998. Web YP's business consists of the
publishing of on-line yellow pages and white pages directories and the hosting
of web sites.
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect reported amounts of 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.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CASH AND CASH EQUIVALENTS--Web YP considers cash in banks and highly-liquid
investments purchased with an original maturity of three months or less to be
cash and cash equivalents.
FURNITURE AND OFFICE EQUIPMENT--Furniture and office equipment are stated at
cost. Improvements are capitalized. Repair and maintenance costs are expensed as
incurred. The cost and related accumulated depreciation of assets retired or
disposed of are removed from the accounts, and any gains or losses are reflected
in results of operations. Depreciation is computed using accelerated methods
over the respective useful lives of the assets ranging from 3 to 7 years.
INCOME TAXES--Web YP has elected to be taxed under the provisions of
Subchapter S of the Internal Revenue Code. Accordingly, no provision for federal
income taxes has been provided for by Web YP, as the stockholders of Web YP have
included the income or loss on their respective income tax returns.
REVENUE RECOGNITION--Revenues are recognized ratably over the time period
that the services are provided, generally, twelve months. Deferred revenues
consist of amounts received in advance of the services being provided.
NET EARNINGS (LOSS) PER SHARE--Basic earnings per share (Basic EPS) is
determined by dividing income available to common stockholders by the weighted
average number of common shares outstanding during the period. Diluted earnings
per share (Diluted EPS) reflects the potential dilution that could occur if
securities and other contracts to issue common stock were exercised or converted
into common stock. In periods in which the inclusion of such securities or
contracts are anti-dilutive, the effect of such securities is not given
consideration. Options and warrants to purchase 4,318 and 3,914 shares of common
stock were excluded from the calculation of Diluted EPS at December 31, 1999 and
1998, respectively, due to their antidilutive effect.
FAIR VALUE OF FINANCIAL INSTRUMENTS--Web YP's only financial instruments are
cash, short-term trade receivables and payables, prepaid expenses, notes payable
and capital lease obligations. Management believes the carrying amounts of the
financial instruments classified as current assets and liabilities approximate
their fair values because of their short-term nature. Management believes the
carrying value of its notes payable and capital lease obligations approximate
fair value as their interest rates approximate market rates.
IMPAIRMENT OF LONG-LIVED ASSETS AND LONG-LIVED ASSETS TO BE DISPOSED
OF--Long-lived assets and certain identifiable intangibles are reviewed for
impairment whenever events or changes in circumstances
F-53
<PAGE>
WEB YP, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1999 AND 1998
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
indicate that the carrying amount of an asset may not be recoverable.
Recoverability of assets to be held and used is measured by a comparison of the
carrying amount of an asset to future net cash flow expected to be generated by
the asset. If such assets are considered to be impaired, the impairment to be
recognized is measured by the amount by which the carrying amount of the assets
exceed the fair value of the assets.
COMPREHENSIVE INCOME--For the years ended December 31, 1999 and 1998,
Web YP did not incur items to be reported in comprehensive income that were not
already included in the reported net earnings; therefore, comprehensive income
(loss) and net income (loss) were the same for these periods.
3. RELATED-PARTY TRANSACTIONS
Transactions with related parties include certain web site design services
with stockholders and entities in which they have an interest. Services provided
to these related parties for the years ended December 31, 1999 and 1998 were
approximately $330,000 and $323,000, respectively. Amounts receivable from
related parties at December 31, 1999 and 1998 were approximately $86,000 and
$10,000, respectively. In addition, Web YP utilizes employees of Big Stuff, Inc.
(an entity related to Web YP by common ownership) for various operating purposes
with the related employee costs being allocated to Web YP. For the years ended
December 31, 1999 and 1998, the employee costs allocated to Web YP were
approximately $224,000 and $181,000, respectively. Due to related parties of
$224,000 on December 31, 1999 relates to expense allocations from Big Stuff,
Inc. for overhead and labor.
4. STOCK OPTIONS AND WARRANTS
In connection with its formation, Web YP issued various stock options and
warrants that allow the holders to purchase shares of common stock at defined
exercise prices. At the time of their issuance, management estimated that the
options and warrants had no fair market value based on the Company's estimate of
the fair market value of its common stock, which was $1.33 per share. As of
December 31, 1999 and 1998, 3,914 of such options and warrants were issued and
outstanding. Of the issued and outstanding options and warrants, 3,568 are
exercisable at $50.00 per share and 750 are exercisable at $1.33 per share.
In November 1999, Web YP granted options to purchase 404 shares of common
stock to certain employees of Web YP at an exercise price of $50.00 per share.
Management determined the fair value of Web YP's common stock to approximate
$1,634 per share on the date of grant based on the valuation of Web YP in the
pending sale to Advanced Communications Group, Inc. ("Advanced") (see note 9).
Compensation expense equivalent to the difference between the fair value of
Web YP's common stock on the date the options vest and the exercise price of the
options will be recorded by Web YP on the vesting date.
All of the options and warrants granted have a contractual life of 10 years
from grant date and are only exercisable in the event of a significant change in
management control or an initial public offering of Web YP. The per share
weighted-average value of stock options and warrants granted to employees during
1997 was determined to be $0.00 using the Black-Scholes model.
F-54
<PAGE>
WEB YP, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1999 AND 1998
5. LEASES
Certain sales and administrative offices and equipment are leased. The
leases expire at various dates through 2001. Leases that expire are generally
renewed or replaced by similar leases depending on business needs. Rent expense
for operating leases for the year ended December 31, 1999 and 1998 was
approximately $75,000 and $133,000.
At December 31, 1999, Web YP's future minimum rental payments due under
noncancelable leases are $136,000 in 2000, $40,000 in 2001 and $5,000 in 2002.
6. PREPAID PORTAL ROYALTIES AND ADVERTISING AGREEMENT
At December 31, 1999, prepaid expenses and other current assets consist
primarily of an agreement entered into by Web YP with a third party portal
website whereby Web YP will serve as the online yellow pages directory services
provider for a period of nine months. This amount has been classified as prepaid
expenses and other current assets on the accompanying December 31, 1999 balance
sheet, and is being amortized over a period of nine months.
7. NOTES PAYABLE TO SHAREHOLDERS
As of December 31, 1999, the shareholders of Web YP had advanced $3,510,000
to Web YP. The loans bear interest at 7% per annum and accrued interest at
December 31, 1999 is $143,325.
8. COMMITMENTS AND CONTINGENCIES
Web YP is party to various legal actions, proceedings and claims arising in
the normal course of business. Some of the foregoing involve, or may involve,
claims for compensatory, punitive or other damages in material amounts.
Litigation is subject to many uncertainties, and it is possible that some of the
legal actions, proceedings and claims referred to above could be decided against
Web YP. Web YP's management believes that any resulting liability will not
materially affect Web YP's financial position, liquidity or results of
operations.
9. SUBSEQUENT EVENT
Web YP and its stockholders have entered into an agreement with Advanced to
sell all of the issued and outstanding common stock of Web YP in exchange for
shares of common stock of Advanced.
F-55
<PAGE>
BIG STUFF, INC.
UNAUDITED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------
1999 1998 1997
--------- ---------- ----------
<S> <C> <C> <C>
Revenues.................................................. $ 862,355 $1,647,688 $2,526,190
Operating costs:
Cost of services........................................ 833,265 1,049,296 1,856,737
Selling, general and administrative expenses............ 432,043 256,698 608,786
Depreciation and amortization........................... 206,259 300,200 149,828
--------- ---------- ----------
Income (loss) from operations........................... (609,212) 41,494 (89,161)
Other income (expense):
Interest expense........................................ (89,992) (60,162) --
--------- ---------- ----------
Income (loss) before income taxes......................... (699,204) (18,668) (89,161)
Income tax expense........................................ -- -- --
--------- ---------- ----------
Net income (loss)..................................... $(699,204) $ (18,668) $ (89,161)
========= ========== ==========
Basic and diluted income (loss) per share................. $ (199.77) $ (5.33) $ (74.30)
========= ========== ==========
Weighted average common shares outstanding................ 3,500 3,500 1,200
========= ========== ==========
</TABLE>
See accompanying notes to financial statements.
F-56
<PAGE>
BIG STUFF, INC.
UNAUDITED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1999 1998
---------- ----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 115,977 $ 670
Accounts receivable....................................... 41,696 184,485
Inventory................................................. 16,980 21,618
Due from related party.................................... 224,344 --
Prepaid expenses and other current assets................. -- 70,203
---------- ----------
Total current assets.................................... 398,997 276,976
Property, plant and equipment, net.......................... 565,938 409,090
Intangible assets, net...................................... 119,665 128,999
---------- ----------
Total assets............................................ $1,084,600 $ 815,065
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities.................. $ 60,504 $ 31,741
Line of credit............................................ 337,256 43,298
Due to stockholders....................................... 1,900,000 --
---------- ----------
Total current liabilities............................... 2,297,760 75,039
---------- ----------
Total liabilities....................................... 2,297,760 75,039
---------- ----------
Commitments and contingencies
Stockholders' equity:
Common stock, no par value: 10,000 shares authorized;
3,500 shares
issued and outstanding.................................. -- --
Additional paid-in capital................................ 1,522,969 1,522,969
Retained earnings (accumulated deficit)................... (2,736,129) (782,943)
---------- ----------
Total stockholders' equity.............................. (1,213,160) 740,026
---------- ----------
Total liabilities and stockholders' equity.............. $1,084,600 $ 815,065
========== ==========
</TABLE>
See accompanying notes to financial statements.
F-57
<PAGE>
BIG STUFF, INC.
UNAUDITED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
RETAINED
COMMON STOCK ADDITIONAL EARNINGS TOTAL
------------------- PAID-IN (ACCUMULATED STOCKHOLDERS'
SHARES AMOUNT CAPITAL DEFICIT) EQUITY (DEFICIT)
-------- -------- ---------- ------------ ----------------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1996............. 1,200 $ -- $ 572,969 $ 1,082,736 $ 1,655,705
Net loss............................... -- -- -- (89,161) (89,161)
Capital contributions.................. -- -- 600,000 -- 600,000
Distributions to stockholders.......... -- -- -- (570,000) (570,000)
----- ---- ---------- ----------- -----------
Balance, December 31, 1997............. 1,200 $ -- $1,172,969 $ 423,575 $ 1,596,544
Net loss............................... -- -- -- (18,668) (18,668)
Capital contributions.................. 2,300 -- 350,000 -- 350,000
Distributions to stockholders.......... -- -- -- (1,187,850) (1,187,850)
----- ---- ---------- ----------- -----------
Balance, December 31, 1998............. 3,500 $ -- $1,522,969 $ (782,943) $ 740,026
Net loss............................... -- -- -- (699,204) (699,204)
Distributions to stockholders.......... -- -- -- (1,253,982) (1,253,982)
----- ---- ---------- ----------- -----------
Balance, December 31, 1999............. 3,500 $ -- $1,522,969 $(2,736,129) $(1,213,160)
===== ==== ========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
F-58
<PAGE>
BIG STUFF, INC.
UNAUDITED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------
1999 1998 1997
--------------- ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss........................................ $ (699,204) $ (18,668) $ (89,161)
Adjustments to reconcile net loss to net cash:
Depreciation and amortization................. 206,259 300,200 149,828
Gain on sale of fixed assets.................. -- 35,980 --
Changes in operating assets and liabilities:
Decrease (increase) in:
Accounts receivable, net.................. 142,789 255,323 358,006
Prepaid expenses and other current
assets.................................. 70,203 118,547 (188,750)
Inventory................................. 4,638 2,245 15,937
Increase (decrease) in:
Accounts payable and accrued
liabilities............................. 28,763 6,892 19,171
----------- ----------- -----------
Net cash provided by (used in) operating
activities.............................. (246,552) 700,519 265,031
----------- ----------- -----------
Cash flows from investing activities:
Additions to property, plant and equipment,
net........................................... (353,773) -- (668,360)
Cost of business acquired....................... -- -- (140,000)
----------- ----------- -----------
Net cash used in investing activities..... (353,773) -- (808,360)
----------- ----------- -----------
Cash flows from financing activities:
Dividends....................................... (1,253,982) (1,187,850) (570,000)
Borrowings from stockholders.................... 1,675,656 -- --
Borrowings from line of credit.................. 293,958 43,298 --
Capital contributions........................... -- 350,000 600,000
----------- ----------- -----------
Net cash provided by (used in) financing
activities.............................. 715,632 (794,552) 30,000
----------- ----------- -----------
Net increase (decrease) in cash and cash
equivalents............................. 115,307 (94,033) (513,329)
Cash and cash equivalents--beginning of year...... 670 94,703 608,032
----------- ----------- -----------
Cash and cash equivalents--end of year............ $ 115,977 $ 670 $ 94,703
=========== =========== ===========
Supplemental cash flows information:
Cash paid for interest.......................... $ 89,992 $ 60,162 $ --
=========== =========== ===========
Cash paid for income taxes...................... $ -- $ -- $ --
=========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
F-59
<PAGE>
BIG STUFF, INC.
NOTES TO UNAUDITED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
1. BASIS OF PRESENTATION
Big Stuff, Inc. (Big Stuff) is a Texas-based company established in 1995.
Big Stuff was founded to provide computer services, including web site and ad
design, and ad colorization services for independent telephone directory
publishers.
The accompanying financial information has been prepared without audit. The
financial statements include the accounts of Big Stuff, Inc. The financial
statements are based on information supplied by Big Stuff and restated by
Advanced in order to conform to generally accepted accounting principles.
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect reported amounts of 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.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CASH AND CASH EQUIVALENTS--Big Stuff considers cash in banks and
highly-liquid investments purchased with an original maturity of three months or
less to be cash and cash equivalents.
PROPERTY, PLANT AND EQUIPMENT--Property, plant and equipment are stated at
cost. Improvements are capitalized. Repair and maintenance costs are expensed as
incurred. The cost and related accumulated depreciation of assets retired or
disposed of are removed from the accounts, and any gains or losses are reflected
in results of operations. Depreciation is computed using accelerated methods
over the respective useful lives of the assets ranging from 3 to 7 years.
INCOME TAXES--Big Stuff has elected to be taxed under the provisions of
Subchapter S of the Internal Revenue Code. Accordingly, no provision for federal
income taxes has been provided for by Big Stuff, as the stockholders of Big
Stuff have included the income or loss on their respective income tax returns.
REVENUE RECOGNITION--Revenues are recognized as services are provided.
NET EARNINGS (LOSS) PER SHARE--Basic earnings per share (Basic EPS) is
determined by dividing income available to common stockholders by the weighted
average number of common shares outstanding during the period.
FAIR VALUE OF FINANCIAL INSTRUMENTS--Big Stuff's only financial instruments
are cash, short-term trade receivables and payables, notes payable and capital
lease obligations. Management believes the carrying amounts of the financial
instruments classified as current assets and liabilities approximate their fair
values because of their short-term nature. Management believes the carrying
value of its notes payable and capital lease obligations approximate fair value.
IMPAIRMENT OF LONG-LIVED ASSETS AND LONG-LIVED ASSETS TO BE DISPOSED
OF--Long-lived assets and certain identifiable intangibles are reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. Recoverability of assets to
be held and used is measured by a comparison of the carrying amount of an asset
to future net cash flow expected to be generated by the asset. If such assets
are considered to be impaired, the impairment to be recognized is measured by
the amount by which the carrying amount of the assets exceed the fair value of
the assets.
F-60
<PAGE>
BIG STUFF, INC.
NOTES TO UNAUDITED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
COMPREHENSIVE INCOME--For the years ended December 31, 1999, 1998 and 1997,
Big Stuff did not incur items to be reported in comprehensive income that were
not already included in the reported net earnings; therefore, comprehensive
income (loss) and net income (loss) were the same for these periods.
3. RELATED-PARTY TRANSACTIONS
Transactions with related parties include certain web site design services
with stockholders and entities in which they have an interest. Services provided
to these related parties for the year ended December 31, 1999, 1998 and 1997
were approximately $483,000, $443,000, and $696,000, respectively. Amounts
receivable from related parties at December 31, 1999 and 1998 were approximately
$10,000 and $40,000, respectively.
To finance operations of Big Stuff the shareholders of Big Stuff loaned
$1,900,000 to Big Stuff in 1999.
4. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consisted of the following at December 31,
1999 and 1998:
<TABLE>
<CAPTION>
1999 1998
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Land and buildings.......................................... $ -- $ --
Leasehold improvements...................................... 2 2
Furniture and office equipment.............................. 1,518 1,164
------ ------
1,520 1,166
Less accumulated depreciation............................... (954) (757)
------ ------
$ 566 $ 409
====== ======
</TABLE>
5. LEASES
Certain sales and administrative offices and equipment are leased. The
leases expire at various dates through 2000. Leases that expire are generally
renewed or replaced by similar leases depending on business needs. Rent expense
for operating leases in 1999, 1998 and 1997 was approximately $60,000, $168,000
and $35,000, respectively.
At December 31, 1999, Big Stuff's future minimum rental payments due under
noncancelable leases were $48,000 in 2000.
F-61
<PAGE>
BIG STUFF, INC.
NOTES TO UNAUDITED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
6. COMMITMENTS AND CONTINGENCIES
Big Stuff is party to various legal actions, proceedings and claims arising
in the normal course of business. Some of the foregoing involve, or may involve,
claims for compensatory, punitive or other damages in material amounts.
Litigation is subject to many uncertainties, and it is possible that some of the
legal actions, proceedings and claims referred to above could be decided against
Big Stuff. Big Stuff's management believes that any resulting liability will not
materially affect Big Stuff's financial position, liquidity or results of
operations.
7. SUBSEQUENT EVENT
Big Stuff and its stockholders have entered into an agreement with Advanced
Communications Group, Inc. (Advanced) to sell all of the issued and outstanding
common stock of Big Stuff in exchange for shares of common stock of Advanced.
F-62
<PAGE>
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
The following unaudited pro forma combined financial statements have been
derived from the application of pro forma adjustments to the historical
financial statements of YPtel and its predecessor, Pacific Coast Publishing,
Inc., Web YP and Big Stuff and the financial statements of Advanced, which are
included in this prospectus. The unaudited pro forma combined financial
statements give effect to the acquisitions of YPtel, Web YP and Big Stuff as if
they had occurred on (1) December 31, 1999 for purposes of the unaudited pro
forma combined balance sheet and (2) January 1, 1999 for purposes of the
unaudited pro forma combined statements of operations for the year ended
December 31, 1999. The unaudited pro forma combined financial statements should
be read in conjunction with the financial statements of Advanced, YPtel, Web YP
and Big Stuff which are included in this prospectus. All historical financial
statements of Big Stuff contained in this prospectus have been prepared and
restated by WorldPages based on information supplied by Big Stuff. The initial
information supplied by Big Stuff did not conform to generally accepted
accounting principles.
The pro forma adjustments are described in the notes to the unaudited pro
forma combined financial statements and are based on available information and
assumptions that management believes are reasonable. The unaudited pro forma
combined financial statements do not purport to present the financial position
or results of operations of WorldPages had the acquisitions occurred on the
dates specified, nor are they necessarily indicative of the results of
operations that may be achieved in the future. The unaudited pro forma combined
financial statements do not reflect any adjustments for the benefits that
management expects to realize in connection with the acquisitions. No assurances
can be made as to the amount or timing of such benefits, if any, that may be
realized.
The acquisitions will be accounted for using the purchase method of
accounting. Under this method, tangible and identifiable intangible assets
acquired and liabilities assumed are recorded at their estimated fair values.
The excess of the purchase price, including estimated fees and expenses related
to the acquisitions, over the fair value of the assets acquired is classified
with intangible and other assets on the accompanying unaudited pro forma balance
sheet. The estimated fair values and useful lives of assets acquired and
liabilities assumed are based upon a preliminary valuation and are subject to
final valuation adjustments. Final allocation of the purchase price to the fair
value of the assets acquired could vary the related amortization period of the
excess of cost over the fair value of net assets acquired.
F-63
<PAGE>
UNAUDITED PRO FORMA COMBINED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1999
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
WORLDPAGES
ADVANCED YPTEL WEB YP BIG STUFF PRO FORMA PRO FORMA
HISTORICAL HISTORICAL HISTORICAL HISTORICAL ADJUSTMENTS COMBINED
---------- ---------- ---------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Revenues............................ $49,987 $38,079 $ 851 $ 862 $ (813)(a) $ 88,966
------- ------- ------- ----- -------- --------
Operating costs:
Printing, distribution and
listings........................ 13,440 8,800 -- -- $ (813)(a) 21,427
Sales and marketing............... 11,464 7,622 3,857 833 23,776
General and administrative........ 20,529 14,595 1,271 432 36,827
Depreciation and amortization..... 4,695 2,536 98 206 6,952 (b) 14,487
------- ------- ------- ----- -------- --------
Total operating costs............... 50,128 33,553 5,226 1,471 6,139 96,517
------- ------- ------- ----- -------- --------
Operating margin.................... (141) 4,526 (4,375) (609) (6,952) (7,551)
Other income (expense):
Other income and expense, net..... 75 47 -- -- 122
Interest expense.................. (4,766) (3,702) (143) (90) 750 (c) (7,951)
------- ------- ------- ----- -------- --------
Income (loss) from continuing
operations before income taxes..... (4,832) 871 (4,518) (699) (6,202) (15,380)
Income tax expense (benefit)........ (1,465) 298 -- -- 285(d) (882)
------- ------- ------- ----- -------- --------
Net income (loss) from continuing
operations......................... $(3,367) $ 573 $(4,518) $(699) $ (6,487) $(14,498)
======= ======= ======= ===== ======== ========
Net income (loss) per share from
continuing operations.............. $ (.17) $ (.34)
======= ========
Weighted average shares
outstanding........................ 19,956 23,243 (e) 43,199
======= ======== ========
</TABLE>
- ------------------------
(a) Reflects the elimination of revenue and cost of sales for services provided
to Advanced by Big Stuff and Web YP.
(b) Reflects the amortization of goodwill resultant from the acquisitions over
periods ranging from
10 to 30 years, as follows:
<TABLE>
<CAPTION>
AMORTIZATION PERIOD
(IN THOUSANDS) ------------ --------
<S> <C> <C>
YPtel................................................... $3,123 30 years
Web YP.................................................. 2,809 10 years
Big Stuff............................................... 1,020 10 years
------
$6,952
======
</TABLE>
(c) Reflects the elimination of interest expense incurred on the $15.0 million
5% Subordinated Notes payable, which will be converted to common stock in
connection with the acquisitions.
(d) Reflects the incremental provision for federal and state income taxes at an
effective tax rate of 38% for the applicable pro forma adjustments.
(e) Reflects the issuance of 19,545,454 shares issued for the purchase of the
acquired companies; 2,840,909 shares issued for the conversion of the 5%
Subordinated Notes payable; and 856,364 shares issued in exchange for
cancellation of indebtedness of $4.7 million to stockholders of Web YP and
Big Stuff.
F-64
<PAGE>
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
AS OF DECEMBER 31, 1999
(IN THOUSANDS)
<TABLE>
<CAPTION>
WORLDPAGES
ADVANCED YPTEL WEB YP BIG STUFF PRO FORMA PRO FORMA
HISTORICAL HISTORICAL HISTORICAL HISTORICAL ADJUSTMENTS COMBINED
------------ ---------- ---------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents..... $ 1,315 $ 59 $ 18 $ 116 $ $ 1,508
Accounts receivable, net...... 14,223 10,039 252 42 24,556
Deferred costs................ 4,482 10,259 -- -- 14,741
Prepaid expenses and other.... 174 1,964 635 241 3,014
-------- ------- ------ ------ -------- --------
Total current assets........ 20,194 22,321 905 399 43,819
-------- ------- ------ ------ -------- --------
Property, plant and equipment,
net............................ 1,377 657 192 566 2,792
Intangible assets, net.......... 75,413 39,749 -- 120 131,976 (a) 247,258
Deferred taxes.................. 6,504 -- -- -- 6,504
Other assets.................... 5,571 5,571
-------- ------- ------ ------ -------- --------
Total other assets.......... 88,865 40,406 192 686 131,976 262,125
-------- ------- ------ ------ -------- --------
Total assets................ $109,059 $62,727 $1,097 $1,085 $131,976 $305,944
======== ======= ====== ====== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued
expenses.................... $ 9,447 $ 3,790 $ 159 $ 61 $ 6,000 (a) $ 18,832
(625)(b)
Short-term debt and current
maturities of long-term
debt........................ 24,000 7,208 -- 337 (15,000)(b) 16,545
Deferred revenue.............. -- 1,831 464 -- 2,295
Notes due to shareholders..... -- -- 3,653 1,900 (5,553)(a) --
Other current liabilities..... 3,940 -- 224 -- 4,164
-------- ------- ------ ------ -------- --------
Total current liabilities... 37,387 12,829 4,500 2,298 (15,178) 41,836
Long-term liabilities:
Long-term debt................ -- 35,276 -- -- 35,276
Deferred taxes................ -- 345 -- -- 345
-------- ------- ------ ------ -------- --------
Total liabilities........... 37,387 48,450 4,500 2,298 (15,178) 77,457
-------- ------- ------ ------ -------- --------
Stockholders' equity:
Common stock.................. 2 13,780 -- -- 2 (a) 4
(13,780)(c)
Additional paid-in capital.... 149,438 -- 2,783 1,523 156,200 (d) 309,944
Retained earnings (deficit)... (77,768) 497 (6,186) (2,736) (3,693)(b) (81,461)
8,425 (c)
-------- ------- ------ ------ -------- --------
Total stockholders'
equity.................... 71,672 14,277 (3,403) (1,213) 147,154 228,487
-------- ------- ------ ------ -------- --------
Total liabilities and
stockholders' equity...... $109,059 $62,727 $1,097 $1,085 $131,976 $305,944
======== ======= ====== ====== ======== ========
</TABLE>
- ------------------------
SEE NOTES TO UNAUDITED PRO FORMA COMBINED BALANCE SHEET ON FOLLOWING PAGE
F-65
<PAGE>
NOTES TO UNAUDITED PRO FORMA COMBINED BALANCE SHEET
(a) Records the purchase of YPtel, Web YP and Big Stuff for approximately
$147.2 million, composed of the following:
<TABLE>
<CAPTION>
SHARES AMOUNT
------------------------ --------------------------------- TOTAL
(IN THOUSANDS) STOCK COMMON STOCK TRANSACTION PURCHASE
COMMON STOCK OPTIONS STOCK OPTIONS COSTS PRICE
------------- -------- -------- -------- ----------- --------
<S> <C> <C> <C> <C> <C> <C>
YPtel................ 15,000,000(1) 351,281 $102,000 $1,964 $4,000 $107,964
Web YP............... 4,020,000(2) -- 27,336 -- 1,000 28,336
Big Stuff............ 1,454,545 -- 9,891 -- 1,000 10,891
---------- ------- -------- ------ ------ --------
20,474,545 351,281 $139,227 $1,964 $6,000 $147,191
========== ======= ======== ====== ====== ========
</TABLE>
For financial reporting purposes, the WorldPages common stock was valued at
$6.80 per share (the average closing price for the five days before and
after the announcement of the acquisitions). The stock options were valued
using the Black-Scholes option pricing model. Transaction costs consist
primarily of legal, accounting, tax and financial advisory costs associated
with the acquisitions.
The purchase price was preliminarily allocated to the fair value of the net
assets acquired as summarized below:
<TABLE>
<CAPTION>
YPTEL WEB YP BIG STUFF TOTAL
(IN THOUSANDS) -------- -------- --------- --------
<S> <C> <C> <C> <C>
Net working capital................... $ 9,785 $ 1,000 $ 112 $ 10,897
Property and equipment................ 652 213 339 1,204
Long-term debt........................ (35,786) -- -- (35,786)
Deferred taxes........................ (134) -- -- (134)
Intangible assets..................... 133,447 27,123 10,440 171,010
-------- ------- ------- --------
Total purchase price.............. $107,964 $28,336 $10,891 $147,191
======== ======= ======= ========
</TABLE>
----------------------------
(1) Included in the shares issued as consideration for YPtel are all shares
of WorldPages common stock expected to be issued either directly and or
indirectly through exchange of Class A Special Shares. The Class A
Special Shares may be issued in lieu of WorldPages common stock for
Canadian tax reasons but are exchangeable into a like number of
WorldPages common stock.
(2) Included in the shares issued as consideration for the Web YP
acquisition are 929,091 shares assumed to be issued in exchange for
estimated indebtedness in the aggregate principal amount of $5.1 million
which has been incurred to finance operations of Web YP and Big Stuff
until the transaction closes. According to the terms of the acquisition
agreements, up to $6.0 million of such indebtedness may be incurred by
Web YP and Big Stuff, which will be exchanged for WorldPages common stock
based on the agreed upon price of $5.50 per share. If the entire
$6.0 million were loaned, 1,090,909 shares of WorldPages common stock
would be issued.
(3) A detailed analysis of the identifiable intangibles has not been
completed. Accordingly, the intangible assets resulting from the
acquisitions are currently assumed to be unidentified intangibles. Upon
completion of the analysis of such identifiable intangibles, such as
customer lists and intellectual property, an allocation will be made and
the underlying amortization periods established. The effect of such
modification in the allocation of intangibles has not been determined at
this time.
F-66
<PAGE>
(b) Reflects the conversion of the $15.0 million 5% subordinated notes payable
and $625,000 accrued interest owed by Advanced into 2,840,909 shares of
common stock and the resultant loss from the conversion. For financial
reporting purposes the stock was valued at $6.80 per share and will result
in an extraordinary loss of $3.7 million as a loss on early extinguishment
of debt. This extraordinary loss is not reflected in the pro forma results
of operations.
(c) Records the elimination of YPtel, Web YP and Big Stuff's historical retained
earnings (deficit) and common stock.
(d) Records the net effect of the following adjustments on capital in excess of
par value:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
Issuance of shares and stock options for acquisitions....... $141,188
Issuance of shares for 5% Subordinated Notes payable........ 19,318
Elimination of YPtel, Web YP and Big Stuff's historical
paid-in capital........................................... (4,306)
--------
$156,200
========
</TABLE>
F-67
<PAGE>
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.
WORLDPAGES.COM, INC.
By: /s/ Michael A. Pruss
-----------------------------
Name: Michael A. Pruss
Title: Vice President and CFO
Date: April 21, 2000
<PAGE>
EXHIBIT INDEX
These Exhibits are numbered in accordance with the Exhibit Table of
Item 601 of Regulation S-K:
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
<S> <C>
1 Omitted - Inapplicable.
2(b) Amended and Restated YPtel Agreement made and entered into as
of October 26, 1999 by and among Advanced Communications
Group, Inc., YPtel Corporation, the shareholders of YPtel
listed on Exhibit "A" attached thereto, Edward Truant, Douglas
G. McIntyre, Jeffrey L. Rosenthal, Stephen D. Lister, the
J.L.R. Family Trust, the Paisley Family Trust, Cold Trust,
Global Investment Trust, Freezer Trust, Storage Trust,
Directory Trust, Publisher Trust, and Imperial Capital
Limited, filed as Exhibit 2(b) to the Form 8-K dated November
19, 1999 and filed on December 6, 1999, is incorporated herein
by reference in its entirety.
2(c) Amended and Restated Web YP Agreement made and entered into as
of October 26, 1999 by and among Advanced Communications
Group, Inc., ACG Acquisition VI Corp., Web YP, Inc., Richard
O'Neal, and Richard L. Reid, filed as Exhibit 2(c) to the Form
8-K dated November 19, 1999 and filed on December 6, 1999, is
incorporated herein by reference in its entirety.
2(d) Amended and Restated Big Stuff Agreement made and entered into
as October 26, 1999 by and among Advanced Communications
Group, Inc., ACG Acquisition VII Corp., Big Stuff, Inc.,
Richard O'Neal, and Richard L. Reid, filed as Exhibit 2(d) to
the Form 8-K dated November 19, 1999 and filed on December 6,
1999, is incorporated herein by reference in its entirety.
4 Omitted - Inapplicable.
16 Omitted - Inapplicable.
17 Omitted - Inapplicable.
20 Omitted - Inapplicable.
23 Omitted - Inapplicable.
24 Omitted - Inapplicable.
27 Omitted - Inapplicable.
99 Omitted - Inapplicable.
</TABLE>
