SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): September 17, 1998
URSUS TELECOM CORPORATION
(Exact name of registrant as specified in its charter)
Florida 333-46197 65-0398306
(State or Other Jurisdiction (Commission (IRS Employer
of Incorporation or Organization) File Number) Identification No.)
440 Sawgrass Corporate Parkway, Suite 112, Sunrise, Florida 33325
(Address of Principal Executive Offices)
Registrant's telephone number, including area code (954-846-7887)
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
On September 17, 1998, pursuant to a Stock Purchase Agreement (the "Agreement')
dated as of September 15, 1998, Ursus Telecom Corporation (the "Company")
purchased all of the issued and outstanding common stock of Access Authority,
Inc. ("Access"). Pursuant to the Agreement, the shareholders of Access received
aggregate consideration of $8 million in cash. The terms of the Agreement,
including the purchase price, were negotiated by the parties on an arms length
basis.
Access is a provider of international long distance telecommunication services,
including call reorigination, domestic toll-free access and various value-added
features to small and medium sized business and individuals in over 38 countries
throughout the world. Access markets its services through an independent and
geographically dispersed sales force consisting of agents and wholesalers.
Access operates a switching facility in Clearwater, Florida.
The Company utilized certain net proceeds of the Company's initial public
offering to pay for the acquisition. After deducting the total expenses of such
offering and the purchase price of $8 million plus estimated expenses of
$150,000, approximately $3.45 million of the net proceeds of such offering
remain.
<PAGE>
ITEM 7. FINANCIAL STATEMENTS; PRO FORMA FINANCIAL INFORMATION AND EXHIBITS
(a) Financial Statements of Businesses Acquired.
Included in this report are the audited financial statements of Access
Authority, Inc. as of December 31, 1997 and 1996, and for each of the three
years in the period ended December 31, 1997, and the unaudited financial
statements of Access Authority as of June 30, 1998 and for the six months ended
June 30, 1998 and 1997, including footnotes listed in the index on page F-1 of
Exhibit 99.1
(b) Pro Forma Financial Information.
Included as Exhibit 99.2 is the pro forma condensed consolidated statements of
operations with respect to the acquisition of Access by the Company. Such pro
forma financial information combine the statements of operations of the Company
for the year ended March 31, 1998 and the six months ended September 30, 1998
with the statements of operations of Access for the year ended December 31, 1997
and the six months ended June 30, 1998, respectively, as if the acquisition had
occurred as of the beginning of the earliest period presented.
(c) Exhibits
*5.1 Press release dated September 18, 1998.
*5.2 Stock Purchase Agreement by and among Access Authority Inc.("Access" ),
the shareholders of Access and Ursus Telecom Corporation dated as of
September 15, 1998.
99.1 Audited combined consolidated financial statements of Access Authority
as of December 31, 1996 and 1997 and for each of the three years in the
period ended December 31, 1997 and the unaudited combined consolidated
financial statements as of June 30, 1998, and for the six months ended
June 30, 1997 and 1998.
99.2 Pro forma financial information of the Company and Access.
* Previously filed
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
URSUS TELECOM CORPORATION
By: /S/ JOHANNES SEEFRIED
-------------------------
Johannes S. Seefried
Chief Financial Officer
and authorized officer of registrant
Dated: NOVEMBER 25, 1998
FINANCIAL STATEMENTS OF BUSINESSES ACQUIRED
Exhibit 99.1 Financial Statements of Access Authority Inc.
Index to Financial Statements
Access Authority, Inc.
Page
Report of Independent Auditors......................................F-2
Combined Consolidated Financial Statements
Consolidated Balance Sheets as of December 31, 1996 and
1997 and June 30, 1998 (unaudited)..................................F-3
Combined Consolidated Statements of Operations for the years
ended December 31, 1995, 1996 and 1997 and the six months
ended June 30, 1997 and 1998(unaudited).............................F-4
Combined Consolidated Statements of Stockholders' Deficit
for the years ended December 31, 1995, 1996 and 1997
and the six months ended June 30, 1998 (unaudited)..................F-5
Combined Consolidated Statements of Cash Flows for the years
ended December 31, 1995, 1996 and 1997 and the six months ended
June 30, 1997 and 1998 (unaudited)..................................F-6
Notes to Combined Consolidated Financial Statements.................F-7
<PAGE>
Report of Independent Auditors
The Board of Directors and Stockholders
Access Authority, Inc.
We have audited the accompanying consolidated balance sheets of Access
Authority, Inc., which was combined with UMS Telecom, Ltd. in July 1995, a
company under common control (the "Company"), as of December 31, 1996 and 1997,
and the related combined consolidated statements of operations, stockholders'
deficit, and cash flows for each of the three years in the period ended December
31, 1997. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these combined
consolidated 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 consolidated financial position of Access Authority,
Inc. as of December 31, 1996 and 1997, and the combined consolidated results of
its operations and its cash flows for each of the three years in the period
ended December 31, 1997, in conformity with generally accepted accounting
principles.
/s/ Ernst & Young LLP
Tampa, Florida
February 7, 1998
<PAGE>
<TABLE>
<CAPTION>
Access Authority, Inc.
Consolidated Balance Sheets
December 31 June 30,
1996 1997 1998
--------------------------------------------------------
Assets (unaudited)
Current assets:
<S> <C> <C> <C>
Cash $ 1,038,608 $ 2,857,097 $ 923,410
Accounts receivable - net of allowance for doubtful
accounts of $200,000, $577,000 and $546,000 in 1996,
1997 and 1998, respectively 1,268,817 1,954,240 802,290
Prepaid expenses and other current assets 17,360 43,173 311,962
Deferred income taxes - 422,000 467,000
----------------------------------------------------------
Total current assets 2,324,785 5,276,510 2,504,662
Property and equipment, net 1,311,411 1,638,752 1,590,479
Note receivable - officer 48,628 48,628 48,628
Deposits 253,389 256,733 79,254
Goodwill, net 30,024 25,531 22,334
Other assets 39,323 2,684 1,880
-----------------------------------------------------------
Total assets $ 4,007,560 $ 7,248,838 $ 4,247,237
===========================================================
Liabilities and stockholders' deficit
Current liabilities:
Accounts payable $ 3,445,267 $ 5,903,619 $ 3,093,420
Commissions payable 645,345 941,914 1,134,992
Accrued expenses and other current liabilities 349,803 300,098 151,027
Unearned income and customer deposits 771,692 639,656 396,473
Current portion of capital lease obligations 52,499 79,098 89,099
Notes payable - related parties 10,732 - -
------------------------------------------------------------
Total current liabilities 5,275,338 7,864,385 4,865,011
Notes payable - related parties 584,468 - -
Capital lease obligation, net of current portion 330,446 192,163 70,435
Deferred income taxes - - 89,000
Stockholders' deficit:
Preferred stock:
Authorized - 5,000,000 shares
Issued and outstanding shares - none - - -
Common stock - $.01 par value:
Authorized - 20,000,000 shares
Issued and outstanding - 981 shares 10 10 10
Additional paid-in capital 77,932 77,932 77,932
Accumulated deficit (2,260,634) (885,652) (855,151)
--------------------------------------------------------------
Total stockholders' deficit (2,182,692) (807,710) (777,209)
--------------------------------------------------------------
Total liabilities and stockholders' deficit $ 4,007,560 $ 7,248,838 $ 4,247,237
==============================================================
</TABLE>
SEE ACCOMPANYING NOTES.
<PAGE>
<TABLE>
<CAPTION>
Access Authority, Inc.
Combined Consolidated Statements of Operations
Six months ended
Year ended December 31, June 30,
1995 1996 1997 1997 1998
----------------------------------------------------------------------------------------
(unaudited)
<S> <C> <C> <C> <C> <C>
Telecommunications revenue $ 5,220,621 $ 25,473,244 $ 47,553,883 $ 21,989,968 $ 18,566,391
Operating expenses:
Cost of telecommunications services 4,126,169 19,398,035 34,003,182 16,018,509 14,007,082
Selling 764,002 2,975,672 5,694,440 2,717,858 1,459,473
General and administrative 763,682 2,701,867 5,203,585 2,419,534 2,892,754
Provision for doubtful accounts 453,735 1,082,731 1,133,172 704,087 418,061
Depreciation and amortization 57,091 227,310 413,078 167,700 263,101
---------------------------------------------------------------------------------------
Total operating expenses 6,164,679 26,385,615 46,447,457 22,027,688 19,040,471
---------------------------------------------------------------------------------------
Income (loss) from operations (944,058) (912,371) 1,106,426 (37,720) (474,080)
Interest income - - (48,444) (11,735) (46,446)
Interest expense 52,934 74,176 140,888 91,173 23,621
Gain on contingency settlement - - - - (499,756)
---------------------------------------------------------------------------------------
Income (loss) before income tax
expense (benefit) (996,992) (986,547) 1,013,982 (117,158) 48,501
Income tax expense (benefit)
Current expense (benefit) - - 61,000 - (26,000)
Deferred expense (benefit) - - (422,000) - 44,000
--------------------------------------------------------------------------------------
- - (361,000) - 18,000
--------------------------------------------------------------------------------------
Net income (loss) $ (996,992) $(986,547) $1,374,982 $ (117,158) 30,501
======================================================================================
</TABLE>
SEE ACCOMPANYING NOTES.
<PAGE>
<TABLE>
<CAPTION>
Access Authority, Inc.
Combined Consolidated Statements of Stockholders' Deficit
Additional
Common Paid In Accumulated
Shares Stock Capital Deficit Total
--------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1994 700 $ 7 $ 1,993 $ (277,095) $ (275,095)
Equipment contributed by Stockholders - - 59,842 - 59,842
Issuance of common stock in
conjunction with business acquisition 124 1 7,099 - 7,100
Issuance of common stock in
exchange for services 157 2 8,998 - 9,000
Net loss - - - (996,992) (996,992)
--------------------------------------------------------------------------------------------
Balance, December 31, 1995 981 10 77,932 (1,274,087) (1,196,145)
Net loss - - - (986,547) (986,547)
--------------------------------------------------------------------------------------------
Balance December 31, 1996 981 10 77,932 (2,260,634) (2,182,692)
Net income - - - 1,374,982 1,374,982
--------------------------------------------------------------------------------------------
Balance, December 31, 1997 981 10 77,932 (885,652) (807,710)
Net loss(unaudited) - - - 30,501 30,501
--------------------------------------------------------------------------------------------
Balance, June 30, 1998(unaudited) 981 $ 10 $ 77,932 $ (855,151) $ (777,209)
============================================================================================
</TABLE>
SEE ACCOMPANYING NOTES.
<PAGE>
<TABLE>
<CAPTION>
Access Authority, Inc.
Combined Consolidated Statements of Cash Flows
Six Months ended
Year ended December 31 June 30,
1995 1996 1997 1997 1998
---------------------------------------------------------------------
Cash flows from operating activities (Unaudited)
<S> <C> <C> <C> <C> <C>
Net income (loss) $ (996,992) $ (986,547) $ 1,374,982 $ (117,158) $ 30,501
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Provision for doubtful accounts 453,735 1,082,731 1,133,172 167,700 314,024
Depreciation and amortization 57,091 227,310 413,078 704,087 263,101
Gain on contingency settlement - - - - (499,756)
Issuance of common stock in exchange for services 9,000 - - - -
Deferred taxes - - (422,000) - 44,000
(Increase) decrease in accounts receivable (598,286) (2,123,074) (1,818,595) (812,299) 837,926
Decrease (increase) in prepaid expenses and other
current assets 9,270 42,743 (25,813) (58,683) (268,789)
(Increase) decrease in deposits and other assets (75,202) (159,289) 33,295 33,222 177,479
Increase (decrease) in accounts payable and
accrued expenses 1,024,138 2,909,636 2,705,216 925,610 (2,266,436)
Increase (decrease) in unearned income and
customer deposits 374,635 365,251 (132,036) (91,888) (243,183)
------------------------------------------------------------------------
Net cash provided by (used in) operating activities 257,389 1,358,761 3,261,299 750,591 (1,611,133)
------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment (148,029) (648,093) (735,926) (465,098) (210,827)
Issuance of note receivable to officer - (48,628) - - -
Cash acquired in acquisition of wholly-owned subsidiary 16,311 - - - -
------------------------------------------------------------------------
Net cash used in investing activities (131,718) (696,721) (735,926) (465,098) (210,827)
------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net proceeds of demand note payable - bank 20,848 - - - -
Repayment of demand note - bank - (20,848) - - -
Repayment of capital lease obligations - - (111,684) (35,037) (111,727)
Increase (decrease) in notes payable related parties 228,430 (12,355) (595,200) (192,192) -
------------------------------------------------------------------------
Net cash provided by (used in) financing activities 249,278 (33,203) (706,884) (227,229) (111,727)
------------------------------------------------------------------------
Net increase (decrease) in cash 374,949 628,837 1,818,489 58,264 (1,933,687)
Cash at beginning of period 34,822 409,771 1,038,608 1,038,608 2,857,097
------------------------------------------------------------------------
Cash at end of period $ 409,771 $ 1,038,608 2,857,097 1,096,872 923,410
========================================================================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the period for interest $ 10,300 $ 46,800 $ 158,274 $ 91,173 $ 23,621
========================================================================
Cash paid during the period for income taxes $ - $ - $ 91,000 $ - $ 9,790
========================================================================
Property and equipment contributed by stockholders $ 59,842 $ - $ - $ - $ -
========================================================================
Property and equipment acquired in exchange for note
payable to related parties $ 31,250 $ - $ - $ - $ -
========================================================================
Property and equipment acquired under capital lease
obligations $ - $ 382,945 $ 37,724 $ 37,724 $ -
========================================================================
Purchases of property and equipment included in
accounts payable $ - $ 135,217 $ - $ - $ -
========================================================================
Issuance of common stock in conjunction with
business acquisition $ 7,100 $ - $ - $ - $ -
========================================================================
</TABLE>
SEE ACCOMPANYING NOTES.
<PAGE>
Access Authority, Inc.
Notes to Combined Consolidated Financial Statements
(Information pertaining to the six months ended
June 30, 1997 and 1998 and the September 17, 1998
Agreement is unaudited)
1. BUSINESS
The Company provides international telecommunications services, including call
reorigination and domestic toll-free access and various value-added features, to
small and medium-sized businesses and individuals in over 38 countries
throughout the world. The Company markets its services through an independent
and geographically dispersed sales force consisting of agents and wholesalers.
On September 17, 1998, pursuant to a Stock Purchase Agreement (the "Agreement')
dated as of September 15, 1998, Ursus Telecom Corporation purchased all of the
issued and outstanding common stock of Access Authority, Inc. Pursuant to the
Agreement, the shareholders of Access received aggregate consideration of $8
million in cash. The terms of the Agreement, including the purchase price, were
negotiated by the parties on an arms length basis.
2. ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The accompanying financial statements combine the accounts of Access Authority,
Inc. and UMS Telecom, Ltd. (UMS Telecom) for the period under common control up
to the date of the Company's merger with UMS Telecom in July 1995. The
consolidated financial statements include the accounts of Access Authority,
Inc., a Delaware corporation, and its wholly-owned subsidiary. Significant
intercompany transactions and balances have been eliminated.
INTERIM FINANCIAL STATEMENTS
The accompanying unaudited interim financial statements as of June 30, 1998 and
for each of the six month periods ended June 30, 1997 and 1998 include all
adjustments which, in the opinion of management, are necessary for a fair
presentation of the Company's financial position and results of operations and
cash flows for the periods presented. All such adjustments are of a normal
recurring nature. The results of the Company's operations for the six months
ended June 30, 1997 and 1998 are not necessarily indicative of the results of
operations for a full fiscal year.
USE OF ESTIMATES
The presentation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities, and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
<PAGE>
Access Authority, Inc.
Notes to Combined Consolidated Financial Statements
(Information pertaining to the six months ended
June 30, 1997, 1998 and the September 17, 1998
Agreement is unaudited)
2. ACCOUNTING POLICIES (CONTINUED)
CREDIT RISK
Financial instruments that subject the Company to credit risk consist primarily
of accounts receivable. Concentrations of credit risk with respect to accounts
receivable are minimal due to the large number of customers comprising the
Company's customer base and their dispersion throughout the world. In addition,
the Company has further reduced credit risk by requiring a substantial portion
of its customers to pay by credit card. The Company performs ongoing credit
evaluations of its customers who do not pay with credit cards and in certain
circumstances may require a deposit. The Company maintains an allowance for
potential credit losses.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of accounts receivable and accounts payable approximate
fair value because of their short-term nature. The carrying amounts of the notes
payable and capital lease obligations approximate fair value because their
interest rates are based upon rates currently available to the Company for debt
with similar terms and conditions.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation and amortization are
provided using the straight-line method over the estimated useful lives of the
assets which range from five to seven years.
INTANGIBLE AND LONG-LIVED ASSETS
The Company reviews the recoverability of intangible and long-lived assets
whenever events or changes in circumstances indicate that the carrying value of
such assets may not be recoverable. If the expected future cash flows for the
use of such assets are less than the carrying value, the Company's policy is to
record a write-down that is determined based on the difference between the
carrying value of the asset and its estimated fair market value.
Goodwill, which represents the cost in excess of the fair market value of
identifiable net assets acquired, is being amortized using the straight-line
method over five years.
<PAGE>
Access Authority, Inc.
Notes to Combined Consolidated Financial Statements
(Information pertaining to the six months ended
June 30, 1997, 1998 and the September 17, 1998
Agreement is unaudited)
2. ACCOUNTING POLICIES (CONTINUED)
TELECOMMUNICATIONS REVENUE
Revenues are recorded as income when the services are provided. Unearned income
represents amounts received from the sale of telecommunications services to be
provided in future periods.
3. MERGERS AND ACQUISITIONS
In July 1995, UMS Telecom, formerly affiliated with the Company by common
ownership, was merged with and into the Company. This transaction was accounted
for as a reorganization of companies under common control in a manner similar to
a pooling of interests. As a result of the common investor group's control over
both Access Authority, Inc. and UMS Telecom, the accompanying combined
consolidated financial statements have been prepared to reflect the accounts of
the Company, UMS Telecom, and the Company's wholly-owned subsidiary on a
combined basis for periods prior to the merger.
In August 1995, the Company acquired all of the outstanding stock of National
Business Telephone Services, Inc. (NBTS) in exchange for 124 shares of the
Company's common stock valued at $7,100 in a business combination accounted for
as a purchase. The cost of the acquisition exceeded the fair value of the net
assets acquired by $39,068, which has been recorded as goodwill. The results of
operations of NBTS are included in the accompanying financial statements since
the date of acquisition.
Both UMS Telecom and NBTS had elected to be treated as Subchapter S corporations
for federal and state income tax reporting purposes. The transactions with the
Company terminated these elections. Application of SFAS No. 109 for the change
in tax status of these entities was immaterial.
<PAGE>
Access Authority, Inc.
Notes to Combined Consolidated Financial Statements
(Information pertaining to the six months ended
June 30, 1997, 1998 and the September 17, 1998
Agreement is unaudited)
4. SIGNIFICANT CUSTOMERS
The Company has had a number of significant agents. Net revenues from the
significant agents were in the following percentages of total revenues:
December 31, June 30,
1995 1996 1997 1997 1998
-------------------------------------------------------
Agent 1 - 29% 30% 30% -
Agent 2 - - 14% 14% 12%
Agent 3 - - 29% 27% 31%
Totals - 29% 73% 73% 43%
=======================================================
During the entire period, no individual customer of the agents accounted for
more than 10% of the Company's revenues. Further, during 1998 the Company
discontinued a relationship with Agent 1, resulting in a significant loss of
revenue. (See Note 13)
5. NOTE RECEIVABLE - OFFICER
The Company has amounts due from an officer totaling $48,628 as of December 31,
1996 and 1997 and at June 30, 1998. The note bears interest at 5% per annum and
is due on demand.
6. PROPERTY AND EQUIPMENT
Property and equipment are comprised of the following:
December 31, June 30,
1996 1997 1998
----------------------------------------------
Telephone equipment $ 493,752 $ 752,984 $ 885,489
Telephone equipment under capital
lease obligation 515,559 515,559 515,559
Computer equipment 477,046 791,500 868,699
Automobiles 11,944 11,944 11,944
Office furniture and equipment 42,663 55,214 55,214
Leasehold improvements 21,924 44,954 46,077
Software development cost 59,600 174,141 174,141
--------------------------------------------------
$ 1,622,488 $ 2,346,296 $2,557,123
Accumulated depreciation and
amortization (311,077) (707,544) (966,644)
--------------------------------------------------
$ 1,311,411 $ 1,638,752 $1,590,479
==================================================
7. MAJOR SUPPLIERS
Substantially all of the Company's line charges were incurred with no more than
three providers. Purchases from these providers accounted for 87%, 89%, and 76%
of the cost of the telecommunication services for the years ended December 31,
1995, 1996, and 1997, respectively and 92% for the six months ended June 30,
1997 and 92% from five carriers for the same period in 1998. Periodically, the
Company enters into agreements with certain carriers that require minimum
monthly usage commitments in return for discounts on services provided. The
Company believes that it will exceed its minimum monthly commitments for all
carriers. At December 31, 1996, 1997 and at June 30, 1998, accounts payable
includes $2,326,538, $3,035,004 and $2,478,896 due to these providers,
respectively.
8. NOTES PAYABLE - RELATED PARTIES
During 1997, the Company paid the remaining balance due under the notes payable
to related parties.
The Company incurred interest expense related to the notes payable of $47,393,
$68,655, and $97,348 for the years ended December 31, 1995, 1996, and 1997,
respectively. Accrued but unpaid interest related to the notes payable was
included in the outstanding balance of the demand note payable at December 31,
1996.
9. OTHER RELATED PARTY TRANSACTIONS
The Company pays a management fee to an affiliate for administrative services.
Management fees were $60,000, $125,000, and $70,000 for the years ended December
31, 1995, 1996, and 1997, respectively and $6,700 and $438,204 for the six
months ended June 30, 1997 and 1998, respectively. The management fee is based
upon the allocable share of time certain employees of the affiliate dedicated to
the Company. The Company reimbursed affiliates $50,975, $122,340, and $151,346
for expenses in the years ended December 31, 1995, 1996, and 1997, respectively
and $61,791 and $56,048 for the six months ended June 30, 1997 and 1998,
respectively. Unpaid balances related to these expenses were included in the
balance of the demand note payable to the affiliate at December 31, 1996.
<PAGE>
Access Authority, Inc.
Notes to Combined Consolidated Financial Statements
(Information pertaining to the six months ended
June 30, 1997, 1998 and the September 17, 1998
Agreement is unaudited)
9. OTHER RELATED PARTY TRANSACTIONS (CONTINUED)
In 1997, the Company entered into a four-year lease agreement with an affiliate
for office space. The agreement contains a one-year renewal option. In 1997,
lease payments totaled $180,000. This lease was subsequently terminated upon the
sale of the Company to Ursus Telecom Corporation on September 17, 1998.
In August 1995, certain stockholders contributed to the Company equipment with a
historical cost basis of $91,092 subject to a note payable of $31,250. The
excess of the fair market value of the equipment, which equaled its historical
cost basis, over the liability assumed by the Company has been reflected as a
contribution of capital.
10. INCOME TAXES
Components of the Company's deferred tax assets and liabilities are as follows:
December 31, June 30,
1996 1997 1998
---------------------------------------------
Deferred tax assets:
Accrued liabilities and reserves $ 356,000 $ 424,000 $ 202,000
Net operating losses 376,000 - 265,000
Valuation allowance (719,000) - -
---------------------------------------------
Total deferred tax assets $ 13,000 $ 424,000 $ 467,000
Deferred tax liabilities $ (13,000) $ (2,000) $ (89,000)
Net deferred tax assets $ - $ 422,000 $ 378,000
=============================================
<PAGE>
Access Authority, Inc.
Notes to Combined Consolidated Financial Statements
(Information pertaining to the six months ended
June 30, 1997, 1998 and the September 17, 1998
Agreement is unaudited)
10. INCOME TAXES (CONTINUED)
As of June 30, 1998, the Company has approximately $720,000 of net operating
losses that begin to expire in 2013. During 1997, the Company utilized
$1,078,000 and $478,000 of federal and state net operating loss carryforwards,
respectively. Prior to 1997, the Company recorded a valuation allowance against
its deferred tax assets as realization was not assured. The following table
reconciles the difference between the amount of income tax (benefit) expense
that would result from applying statutory rates to the pretax loss/income and
the amount presented in the accompanying statements of operations:
<TABLE>
<CAPTION>
Year Ended December 31, Six Months Ended
June 30,
1995 1996 1997 1997 1998
----------------------------------------------------------------------------------------------
Federal income tax (benefit) expense
<S> <C> <C> <C> <C> <C>
at statutory rates $ (339,000) $ (336,000) $ 345,000 $ - $ 16,000
State income tax (benefit) expense, (35,000) (9,000) 13,000 - 2,000
net of federal taxes
Valuation allowance 374,000 345,000 (719,000) - -
------------------------------------------------------------------------------------------------
$ - $ - $ (361,000) $ - $ 18,000
================================================================================================
</TABLE>
11. LEASE COMMITMENTS
The Company leases certain switching equipment for its German operations, under
an agreement which has been accounted for as a capital lease. The related
equipment had a cost of $515,559 and accumulated depreciation of $128,889 at
June 30, 1998. The agreement required an initial payment of $150,000 and a
variable monthly installment of principal based upon usage with a minimum
monthly payments of $7,500 through payoff.
Further, the Company leases its facilities and certain other equipment under
noncancelable operating leases that expire through 2001. Rent expense under
operating leases totaled approximately $62,000, $86,000, and $269,000 for the
years ended December 31, 1995, 1996, and 1997, respectively and approximately
$201,000 and $171,000 for the six months ended June 30, 1997 and 1998,
respectively. Certain leases require the payment of related property taxes,
insurance, maintenance, and other costs. In connection with the sale of the
Company to Ursus Telecom on September 17, 1998 a lease that required monthly
payments of $15,000 per month has been terminated and as such, payments due
subsequent to that date are no longer a commitment of the Company.
<PAGE>
Access Authority, Inc.
Notes to Combined Consolidated Financial Statements
(Information pertaining to the six months ended
June 30, 1997, 1998 and the September 17, 1998
Agreement is unaudited)
11. LEASE COMMITMENTS (CONTINUED)
Minimum future lease payments under both capital and operating leases (including
the lease with affiliate) together with the present value of the net minimum
lease payments under capital leases as of June 30, 1998 are summarized as
follows:
Capital Operating
Leases Leases
-----------------------------------
1998 $ 52,658 $ 59,954
1999 105,369 -
2000 12,211 -
-----------------------------------
Total minimum lease payments 170,238 $ 59,954
===============
Amounts representing interest 10,704
--------------
Present value of net minimum lease payments $ 159,534
==============
12. GEOGRAPHIC INFORMATION
The Company has operations in the United States and derives a significant
portion of its revenues from customers located in foreign countries. At December
31, 1997 and June 30, 1998 the Company had assets with a net book value of
approximately $490,763 and $386,670 in Germany, respectively. Prior to 1996,
there were no assets in a country other than the United States. The following is
a summary of telecommunications revenue.
Six months ended
Year Ended December 31 June 30
1995 1996 1997 1997 1998
----------------------------------------------------------
Export revenues $4,966,881 $23,236,687 $42,006,247 $19,424,618 $16,416,248
United States revenues 253,740 2,236,557 5,547,636 2,565,350 2,150,143
-----------------------------------------------------------
Total $5,220,621 $25,473,244 $47,553,883 $21,989,968 $18,566,391
===========================================================
<PAGE>
Access Authority, Inc.
Notes to Combined Consolidated Financial Statements
(Information pertaining to the six months ended
June 30, 1997, 1998 and the September 17, 1998
Agreement is unaudited)
12. GEOGRAPHIC INFORMATION (CONTINUED)
Export revenues for the years ended December 31, 1996 and 1997, and the six
months ended June 30, 1997 and 1998 consists of the following geographic
regions.
Six month ended
Year Ended December 31, June 30,
-----------------------------------------------------
1996 1997 1997 1998
-----------------------------------------------------
Europe $ 10,602,650 $ 12,273,657 $ 5,675,611 $6,405,877
Asia 10,479,917 13,919,022 6,436,464 7,344,533
Central and South America 1,691,972 14,128,258 6,533,218 2,033,326
Middle East/Africa 462,148 1,685,310 779,325 632,512
------------------------------------------------------
$ 23,236,687 $ 42,006,247 $19,424,618 $16,416,248
======================================================
13. CONTINGENCY
The Company had received a claim from a former vendor aggregating $1.7 million.
The Company disputed the amount of the charges and had requested that the vendor
substantiate the claim by providing the call records and bills for the
telecommunications services alleged to have been provided. The vendor has not
produced the records but has joined the Company in a lawsuit as a third party
defendant in which the plaintiff, a supplier of telecommunications services,
alleged that the vendor failed to pay it for services provided and sought
damages of approximately $3.8 million. The vendor alleged that the plaintiff was
obliged to provide the services at a lower rate and that the Company was liable
to it at such lower rate for the services that are the subject of the
plaintiff's complaint. The plaintiff in the lawsuit also sought to foreclose on
its security interest in the vendor's receivables, including its claim against
the Company. The Company had entered into an agreement with the plaintiff in the
lawsuit, whereby the plaintiff had agreed not to prosecute or collect any claims
against the Company. In June 1998 the above case was settled for $75,000
resulting in a gain of approximately $500,000, which has been recorded as other
income in the six months ended June 30, 1998.
In February 1998, the Company filed an action against Edwin Alley, d/b/a Phone
Anywhere in the United States District Court for the Middle District of Florida
claiming that Edwin Alley, d/b/a Phone Anywhere ("Alley"), a former sales agent
for the Company, breached its agency agreement with the Company, wrongfully
diverted customers and business to the Company's competitors, misappropriated
the Company's trade secrets, breached fiduciary and other duties owed to the
Company and engaged in unfair competition. The Company seeks compensatory
damages, injunctive relief and a declaratory judgment. Alley counterclaimed for
breach of contract and quantum meruit, seeking damages and injunctive relief to
enjoin the Company from soliciting or providing services to customers located by
him. Discovery is proceeding on the Company's claims. Alley has moved for
summary judgment on jurisdictional grounds and the Company is responding to the
motion.
Subsequent to the filing of the Company's federal action, Alley commenced an
action against the Company in the Circuit Court of the Sixth Judicial Circuit,
Pinellas County, Florida. In that action, Alley asserts essentially the same
claims and seeks the same relief as in his federal counterclaim. Access
Authority has answered the Complaint, denying the material allegations in the
pleading, and has asserted counterclaims against Alley based largely on the
claims it asserted in the federal proceeding commenced by it. The Pinellas
County proceeding has been stayed pending disposition of the federal action.
Management does not believe that this action will have a material impact on the
financial condition or the results of operations of the Company.
14. YEAR 2000 ISSUE (UNAUDITED)
The Company has developed a plan to modify its information technology to be
ready for the year 2000 and has begun converting critical data processing
systems. The Company currently expects the project to be substantially complete
by early 1999 and to cost less than $20,000. This estimate includes internal
costs, but excludes the costs to upgrade and replace systems in the normal
course of business. The Company does not expect this project to have a
significant effect on operations. As of June 30, 1998, the Company has not
incurred any significant expenses. The Company will continue to implement
systems with strategic value though some projects may be delayed due to resource
constraints.
<PAGE>
PRO FORMA FINANCIAL INFORMATION
Exhibit 99.2 Unaudited Pro Forma Condensed Consolidated Statements of Operations
The following pro forma condensed consolidated statements of operations are set
forth herein to give effect to the acquisition of Access by the Company as if
such acquisition had occurred as of the beginning of each period presented by
combining the statements of operations of (i) the Company for the year ended
March 31, 1998 and Access for the year ended December 31, 1997, and (ii) the
Company for the six months ended September 30, 1998 and Access for the six
months ended June 30, 1998. The pro forma consolidated statements of operations
does not reflect any potential cost savings which may be obtained following the
acquisition. The pro forma adjustments and assumptions are based on estimates,
evaluations and other data currently available.
The pro forma condensed consolidated statements of operations are provided for
illustrative purposes only and are not necessarily indicative of the combined
results of operations that would have been reported on a historical basis, nor
do they represent a forecast of the combined future results of operations for
any future period. All information contained herein should be read in
conjunction with the Consolidated Financial Statements and the notes thereto of
the Company and "Management's Discussion and Analysis of Financial Condition and
Results of Operations" included in the Company's Form 10-K for the year ended
March 31, 1998, the financial statements and notes thereto of Access included in
this Form 8-K and the notes to the Unaudited Pro Forma Condensed Combining
Financial Information.
<PAGE>
<TABLE>
<CAPTION>
URSUS TELECOM CORPORATION
UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED MARCH 31, 1998
Ursus Access
Telecome Authority
Corporation Inc.
Year Ended Year ended
March 31, December 31, Pro Forma Pro Forma
1998 1997(a) Adjustments As Adjusted
-----------------------------------------------------------------------
Revenues:
<S> <C> <C> <C> <C>
Retail $24,198,629 $24,096,245 $48,294,874
Wholesale 3,899,695 23,457,638 27,357,333
-----------------------------------------------------------------------
Total revenues 28,098,324 47,553,883 75,652,207
Cost of revenues:
Retail 15,017,899 14,421,434 29,439,333
Wholesale 3,514,796 19,581,748 23,096,544
-----------------------------------------------------------------------
Total cost of revenues 18,532,695 34,003,182 52,535,877
-----------------------------------------------------------------------
Gross profit 9,565,629 13,550,701 23,116,330
Operating expenses:
Commissions 4,181,651 5,473,772 9,655,423
Selling, general and administrative
expenses 3,467,585 6,557,425 10,025,010
Depreciation and amortization 196,497 413,078 562,341 (b) 1,171,916
-----------------------------------------------------------------------
Total operating expenses 7,845,733 12,444,275 562,341 20,852,349
-----------------------------------------------------------------------
Operating income 1,719,896 1,106,426 (562,341) 2,263,981
Other income (expense):
Interest expense (23,747) (140,888) (164,635)
Interest income 26,752 48,444 75,196
Gain (loss) on sale of equipment 10,584 - 10,584
-------------------------------------------------------------------------
13,589 (92,444) (78,855)
-------------------------------------------------------------------------
Income before provision (benefit)
for income taxes 1,733,485 1,013,982 (562,341) 2,185,126
Provision (benefit) for income taxes 659,577 (361,000) (d) 298,577
-------------------------------------------------------------------------
Net income $ 1,073,908 $ 1,374,982 $(562,341) $ 1,866,549
=========================================================================
Pro forma net income per common
share-basic and dilutive $ .21 $ .38
=========================================================================
Pro forma weighted
average shares outstanding 5,000,000 5,000,000
=========================================================================
</TABLE>
<TABLE>
<CAPTION>
URSUS TELECOM CORPORATION
UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED SEPTEMBER 30, 1998
Ursus Telecom Access
Corporation Authority Inc.
For the For the
Six Months Six Months
Ended Ended
September 30, June 30, Pro Forma Pro Forma
1998 1998(a) Adjustments As Adjusted
Revenues:
<S> <C> <C> <C> <C>
Retail $11,687,009 $8,586,575 $ 20,273,584
Wholesale 1,561,369 9,979,816 11,541,185
-----------------------------------------------------------------------------
Total revenues 13,248,378 18,566,391 31,814,769
Cost of revenues:
Retail 7,339,275 5,755,106 13,094,381
Wholesale 1,230,988 8,251,976 9,482,964
-----------------------------------------------------------------------------
Total cost of revenues 8,570,263 14,007,082 22,577,345
-----------------------------------------------------------------------------
Gross profit 4,678,115 4,559,309 9,237,424
Operating expenses:
Commissions 1,799,120 1,070,895 2,870,015
Selling, general and administrative expenses 2,553,369 3,699,393 6,252,762
Depreciation and amortization 228,904 263,101 281,170 (c) 773,175
------------------------------------------------------------------------------
Total operating expenses 4,581,393 5,033,389 281,170 9,895,952
------------------------------------------------------------------------------
Operating income (loss) 96,722 (474,080) (281,170) (658,528)
Other income (expense):
Interest expense (20,452) (23,621) (44,073)
Interest income 231,979 46,446 278,425
Gain on contingency settlement 499,756 499,756
211,527 522,581 734,108
------------------------------------------------------------------------------
Income (loss)before provision (benefit)
for income taxes 308,249 48,501 (281,170) 75,580
Provision (benefit) for income taxes 155,370 18,000 (d) 173,370
------------------------------------------------------------------------------
Net income(loss) $ 152,879 $ 30,501 $ (281,170) $ (97,790)
==============================================================================
Pro forma net income per common
Share-basic and dilutive $ .02 $ (.02)
==============================================================================
Pro forma weighted average shares outstanding 5,708,791 5,708,791
==============================================================================
</TABLE>
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Note 1. The unaudited pro forma condensed consolidated statements of operations,
including the notes thereto, should be read in conjunction with the historical
consolidated financial statements of the Company and the combined consolidated
financial statements of Access for the indicated periods.
Note 2. The Company's statement of operations for the year ended March 31,1998
has been combined with Access's statement of operations for the year ended
December 31, 1997. Additionally, the Company's statement of operations for the
six month period ended September 30, 1998 has been combined with Access's
statement of operations for the six month period ended June 30, 1998. The
purpose of combining the two companies is for the presentation of unaudited pro
forma condensed consolidated statements of operations only.
Note 3. The unaudited pro forma condensed consolidated statements of operations
for the Company and Access have been prepared as if the acquisition was
completed as of the beginning of each period presented. The unaudited pro forma
net loss per share is based on the weighted average number of common shares of
the Company's Common Stock outstanding during the periods presented.
Note 4. The unaudited pro forma condensed consolidated statements of operations
do not reflect activity subsequent to the periods presented and therefore do not
reflect the loss of revenue attributable to Access's loss of two agents. These
agents in the aggregate accounted for approximately $2 million per month of
revenue for the year ended December 31, 1997.
Note 5. The following pro forma adjustments are reflected in the unaudited pro
forma condensed consolidated statements of operations.
(a) Certain reclassifications have been made to Access's historical
financial statements to conform to Ursus Telecom Corporation's
presentation.
(b) To record amortization expense of intangibles for the year ended
March 31, 1998 for the excess of purchase price over the fair
value of net assets acquired. The Company has preliminarily
allocated the excess of purchase price over the fair value of net
assets acquired to goodwill and customer lists using lives of 20
and 7 years, respectively.
(c) To record amortization expense of intangibles for the six months
ended September 30, 1998. The Company has preliminarily allocated
the excess of purchase price over the fair value of net assets
acquired to goodwill and customer lists using lives of 20 and
7 years, respectively.
(d) No tax effect has been recorded as the amortization expense is
non-deductible for income tax purposes.
