SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
CURRENT REPORT
Pursuant to section 13 or 15 (d) of the Securities Exchange Act
September 27, 1999
Date of Report
(Date of Earliest Event Reported)
Americom USA, Inc.
(Exact Name as Specified in its Charter)
Delaware 0-023769 52-2068322
----------------- ------------ -------------------
(State or other (Commission (I.R.S. Employer
jurisdiction of File Number) Identification No.)
incorporation)
1303 Grand Avenue
Arroyo Grande, California, CA 93420
-----------------------------------------
(Address of principal executive offices)
805/542-6700
-------------------------------
Registrant's telephone number
<PAGE>2
ITEM 2. Acquisition or Disposition of Assets
On September 27, 1999 AmeriComUSA, Inc. (`the Company') finalized a Merger And
Recapitalization Agreement and Plan of Reorganization with digiCities,
Incorporated (`the Agreement'). The Agreement was initially entered into on
August 2, 1999 but subsequently re-negotiated and amended. The Agreement was
concluded pursuant to the Memorandum of Understanding reached with digiCities on
July 2, 1999 and previously reported on Form 8K.
The Agreement provides for the Company to acquire all of digiCities' issued and
outstanding common stock in exchange for 3,500,014 shares of AmeriComUSA's Class
A common stock. In addition, AmeriComUSA will allocate options to purchase
1,500,000 shares of its Class A common stock to digiCities employees, pursuant
to AmeriComUSA's employee stock option plan. Following completion of the
acquisition, digiCities, Inc. will cease to exist as an independent entity.
Completion of the Merger is contingent upon satisfaction of certain Conditions
detailed in the Agreement including the obtaining of a Fairness Order and permit
qualification for the merger from the California Department of Corporations.
The Agreement also provides for the Company's authorized capital stock to be
increased to 120,000,000 shares, of which 99,000,000 shares will be designated
as Class A Common Stock, $0.0001 par value, 1,000,000 will be designated as
Class B Common Stock, $0.0001 par value and 20,000,000 will be designated as
Preferred Stock, $0.0001 par value. The Class A Common Stock shall have all the
rights, preferences and privileges granted to common stock under the General
Delaware Corporations Law while the Class B Common Stock and Preferred Stock
shall have such rights, preferences and privileges and shall be issued in such
numbers as the Company's Board of Directors may determine from time to time.
Simultaneously with the merger with digiCities, all the outstanding shares of
the Company's Common Stock will be converted and exchanged to shares of Class A
Common Stock, $0.0001 par value on a one-for-one basis.
digiCities' designs and supports corporate Internet web sites and conducts
direct sales campaigns to promote its services. digiCities' has in excess of
15,000 web site customers.
Item 7. Financial Statements and Exhibits
EXHIBITS
1) Merger and Recapitalization Agreement and Plan of Reorganization with
digiCities, Incorporated dated September 27, 1999.*
2) i) Audited financial statements for digiCities, Inc. as of June 30, 1999.**
ii) Proforma, condensed, consolidated financial statements for AmeriComUSA,
Inc. and digiCities, Inc. as of June 30, 1999 (unaudited).**
- ---------------------------
* Previously filed.
** Filed with this amendment
<PAGE>3
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.
AMERICOM USA, INC.
By: /s/ ROBERT M. CEZAR
------------------
Robert M. Cezar
Chief Executive Officer
Dated: October 18, 1999
<PAGE>i
digiCities, INC.
FINANCIAL STATEMENTS
AS OF JUNE 30, 1999
<PAGE>ii
digiCities, INC.
CONTENTS
FINANCIAL STATEMENTS WITH STANDARD REPORT:
PAGE 1 - INDEPENDENT AUDITORS' REPORT
PAGE 2 - BALANCE SHEET AS OF JUNE 30, 1999
PAGE 3 - STATEMENT OF OPERATIONS FOR THE PERIOD FROM
OCTOBER 30, 1998 (INCEPTION) TO JUNE 30, 1999
PAGE 4 - STATEMENT OF CHANGES IN STOCKHOLDERS'
DEFICIENCY FROM OCTOBER 30,1998 (INCEPTION) TO
JUNE 30,1999
PAGE 5 - STATEMENT OF CASH FLOWS FOR THE PERIOD FROM
OCTOBER 30, 1998 (INCEPTION) TO JUNE 30, 1999
PAGES 6 - 11 - NOTES TO FINANCIAL STATEMENTS AS OF
JUNE 30, 1999
<PAGE>F-1
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of:
digiCities, Inc.
We have audited the accompanying balance sheet of digiCities, Inc. as of June
30, 1999 and the related statement of operations, changes in stockholders'
deficiency and cash flows for the period from October 30, 1998 (inception) to
June 30, 1999. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
These 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 financial statements referred to above present fairly, in
all material respects, the financial position of digiCities, Inc. as of June 30,
1999 and the results of its operations and its cash flows for the period from
October 30, 1998 (inception) to June 30, 1999, in conformity with generally
accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 9 to the
financial statements, the Company's operating loss and working capital
deficiency of $327,838 raise substantial doubt about its ability to continue as
a going concern. Management's plan in regards to these matters is also described
in Note 9. The financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
WEINBERG & COMPANY, P.A.
Boca Raton, Florida
September 27, 1999
<PAGE>F-2
digiCities, INC.
BALANCE SHEET
JUNE 30, 1999
ASSETS
1999
----------
CURRENT ASSETS
Cash $ 1,404
Accounts receivable, net 293,953
---------
Total Current Assets 295,357
---------
PROPERTY AND EQUIPMENT, NET 94,824
---------
OTHER ASSETS
Accounts receivable - long term, net -
Deposits 457
---------
Total Other Assets 457
---------
TOTAL ASSETS $ 390,638
- ------------ =========
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
CURRENT LIABILITIES
Cash overdraft $ 4,172
Accounts payable 34,269
Current maturity of note payable 10,000
Current portion of capital lease 464
Accrued liabilities 27,146
Accrued salaries 204,530
Due to factor 207,843
Due to related parties 132,571
Due to stockholder 2,200
---------
Total Current Liabilities 623,195
---------
LONG-TERM LIABILITIES
Long term portion of capital lease 5,462
---------
Total Liabilities 628,657
---------
STOCKHOLDERS' DEFICIENCY
Common stock, no par value; 100,000 shares authorized;
85,000 shares issued and outstanding 20,000
Additional paid-in capital 4,730
Deficit (262,749)
---------
Total Stockholders' Deficiency (238,019)
---------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIENCY $ 390,638
- ---------------------------------------------- =========
See accompanying notes to financial statements
<PAGE>F-3
digiCities, INC.
STATEMENT OF OPERATIONS
FOR THE PERIOD FROM OCTOBER 30, 1998
(INCEPTION) TO JUNE 30, 1999
NET REVENUES $1,096,177
----------
OPERATING EXPENSES
Payroll 348,284
Payroll taxes 21,625
Provision for bad debt 578,888
Site acquisition costs 255,167
Telephone expense 25,875
Advertising and Promotion 25,819
Rent expense 16,700
Verification 11,398
Computer bandwidth 10,110
Bank charges and fees 8,423
Depreciation expense 7,353
Legal and professional services 5,213
Travel, meals, and entertainment 4,786
Utilities 2,730
Repair equipment 1,516
Miscellaneous 4,492
Insurance 231
Taxes and licenses 200
----------
Total Operating Expenses 1,328,810
----------
LOSS FROM OPERATIONS (232,633)
----------
OTHER EXPENSES
Interest expense (8,463)
Factor fees (21,653)
----------
Total Other Expenses (30,116)
----------
LOSS BEFORE INCOME TAXES (262,749)
INCOME TAX EXPENSE -
----------
NET LOSS $ (262,749)
- -------- ==========
Net loss per common share:
basic and diluted $ (3.09)
==========
Weighted average common shares:
outstanding - basic and diluted 85,000
==========
See accompanying notes to financial statements
<PAGE>F-4
digiCities, INC.
STATEMENT OF STOCKHOLDERS' DEFIFIENCY
FOR THE PERIOD FROM OCTOBER 30, 1998
(INCEPTION) TO JUNE 30, 1999
Additional
Common Stock Paid-in Accumulated
Shares Amount Capital Deficit Total
-------- -------- --------- ----------- --------
Common stock issuance 85,000 $ 20,000 $ 4,730 $ - $ 24,730
Net loss for the
Period from October
30, 1998 (Inception)
to June 30, 1999 - - - (262,749) (262,749)
-------- -------- --------- --------- ---------
BALANCE, JUNE 30, 1999 85,000 $ 20,000 $ 4,730 $(262,749) $(238,019)
- ---------------------- ======== ======== ========= ========= =========
See accompanying notes to financial statements.
<PAGE>F-5
digiCities, INC.
STATEMENT OF CASH FLOWS
FOR THE PERIOD FROM OCTOBER 30, 1998
(INCEPTION) TO JUNE 30, 1999
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (262,749)
Adjustments to reconcile net loss
to net cash used in
operating activities:
Depreciation and amortization 7,353
Provision for bad debt 578,888
Changes in assets and liabilities (Increase) in:
Accounts receivable - current (639,460)
Accounts receivable - long term (233,381)
Increase in:
Accounts payable 34,269
Accrued salaries 204,530
Bank overdraft 4,172
Accrued expenses 27,146
Due to related parties 132,571
----------
Net cash used in operating activities (146,661)
----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (95,870)
Deposits (457)
----------
Net cash used in investing activities (96,327)
----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on note payable (5,000)
Payments on capital lease (381)
Proceeds from notes and loans payable 15,000
Issuance of common stock 24,730
Increase in due to factor 207,843
Due to stockholder 2,200
----------
Net cash provided by financing activities 244,392
----------
INCREASE IN CASH AND CASH EQUIVALENTS 1,404
CASH AND CASH EQUIVALENTS - BEGINNING OF YEAR -
----------
CASH AND CASH EQUIVALENTS - END OF YEAR $ 1,404
- --------------------------------------- ==========
Cash paid during the year for:
Interest $ 963
==========
Taxes $ -
===========
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND
FINANCING ACTIVITIES:
Equipment acquired by capital lease $ 6,307
See accompanying notes to financial statements.
<PAGE>F-6
DIGICITIES, INC.
NOTES TO FINANCIAL STATEMENTS
AS OF JUNE 30, 1999
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND ORGANIZATION
(A) Description of Business
digiCities, Inc. (the "Company"), incorporated under the laws of
California on October 30, 1998, specializes in the design and hosting
of Internet Web sites for small and medium size businesses using a
standard layout. The Company has entered into a merger agreement dated
September 27, 1999. (See Note 10)
(B) Use of Estimates
In preparing financial statements in conformity with generally accepted
accounting principles, management is required to make estimates and
assumptions that affect the reported amounts of assets and liabilities.
This includes the disclosure of contingent assets and liabilities at
the date of the financial statements and revenues and expenses during
the reported period. Actual results could differ from those estimates.
(C) Cash and Cash Equivalents
For purpose of the cash flow statements, the Company considers all
highly liquid investments with original maturities of three months or
less at time of purchase to be cash equivalents.
(D) Property and Equipment
Property and equipment are stated at cost, less accumulated
depreciation. Expenditures from maintenance and repairs are charged to
expense as incurred. Depreciation is provided using the straight-line
method over the estimated useful life of the assets from 5 to 7 years.
(E) Revenue Recognition
The Company charges an initial set up fee that is recognized when the
site is created and loaded onto the Internet. The Company also charges
a monthly hosting fee for each Web site. Revenues are recognized as
earned over the hosting period.
(F) Site Acquisition Costs
The Company uses in-house and outside telemarketers to acquire new Web
site customers. These amounts are charged to operating expenses as
incurred.
(G) Income Taxes
The Company accounts for income taxes under the Financial Accounting
Standards Board Statement of Financial Accounting Standards 109.
"Accounting for Income Taxes" ("Statement 109"). Under Statement 109,
deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax basis. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the
years in which those assets or liabilities are expected to be recovered
or settled. Under Statement 109, the effect on deferred tax assets and
<PAGE>F-7
DIGICITIES, INC.
NOTES TO FINANCIAL STATEMENTS
AS OF JUNE 30, 1999
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND ORGANIZATION - (CONT'D)
(G) Income Taxes - (CONT'D)
liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date.
NOTE 2 - ACCOUNTS RECEIVABLE AND FACTOR AGREEMENT
The Company bills its customers primarily through aggregators. An
aggregator represents several hundred local telephone exchange carriers
("LECs"). The LECs bill the hosting fees in the customer's monthly
phone bill and remit the proceeds to the aggregator. The aggregator
holds back a percentage of the amounts collected as a reserve against
future charge backs. The amounts reserved are recorded as long term
receivables since the aggregator holds these amounts up to eighteen
months. Prior to June 30, 1999, the Company's primary aggregator filed
for Bankruptcy protection. The Company has approximately $207,800 in
current accounts receivable and $233,381 in long term receivables
outstanding at June 30, 1999 that were billed by the aforementioned
aggregator. The Company has been advanced approximately $207,800 from a
factor on these accounts receivable. The Company currently uses another
aggregator that bills 99% of the Company's sales. The Company has
approximately $284,400 in current accounts receivable outstanding from
this aggregator at June 30, 1999.
Receivables as of June 30, 1999:
Accounts Long Term
Receivable Receivables
------------ ------------
Receivable $ 639,460 $ 233,381
Allowance for doubtful accounts 345,507 233,381
------------ ------------
$ 293,953 $ -
============ ============
For the period ending June 30, 1999, the Company recorded a provision
for doubtful accounts of $578,888 which includes, among other reserves,
the entire amount due from the bankrupt aggregator.
The Company sells certain trade accounts receivable, with recourse,
pursuant to a factoring agreement (the "Agreement"). Under the
Agreement, the factor advances 50% of the face value of these
receivables to the Company. The Company is charged a variable
percentage fee based upon the length of the collection period.
Factoring fees, sales returns and uncollectible accounts are charged
against the reserve and the balance is remitted to the Company
periodically as accounts are collected by the factor. For the period
<PAGE>F-8
DIGICITIES, INC.
NOTES TO FINANCIAL STATEMENTS
AS OF JUNE 30, 1999
NOTE 2 - ACCOUNTS RECEIVABLE AND FACTOR AGREEMENT - (CONT'D)
ending June 30, 1999 the Company incurred $21,653 in factoring fees.
Jacobson Enhanced Technology, dba as Net Computer Business Center
("NetCBC"), which is owned by two of the Company's shareholders has
personally guaranteed all debts owed to the factor by digiCities.
digiCities has indemnified NetCBC from any and all claims, demands,
actions, liability and expenses that may arise out of the guarantee.
All of the Company's accounts receivable, inventories, tangible and
intangible assets are pledged as collateral under this agreement. At
June 30, 1999, the outstanding balance of factored receivables was
approximately $767,300 of which $207,800 is advanced by and due to the
factor.
NOTE 3 - PROPERTY AND EQUIPMENT
Property and equipment at June 30 consisted of the following:
1999
-----------
Office furniture $ 11,521
Computer equipment 59,965
Leasehold improvements 24,384
Equipment under capital lease 6,307
Less accumulated depreciation (7,353)
-----------
$ 94,824
Depreciation expense for the period ended June 30, 1999 was $7,353.
NOTE 4 - ACCRUED SALARIES
Accrued salaries represent current unpaid salaries to officers and
directors from January 1999 to June 1999:
Accrued salaries $ 204,530
NOTE 5 - NOTE PAYABLE
In January 1999, the Company entered into a loan agreement with an
individual with an original principal of $15,000 and a fixed interest
payment of $7,500. The note is unsecured with monthly principal
payments of $5,000 starting in May 1999. Accrued interest on the note
of $7,500 is included in accrued liabilities at June 30, 1999.
NOTE 6 - COMMITMENTS AND CONTINGENCIES
(A) Year 2000 Issues
The Company is aware of the issues associated with the programming code
in existing computer systems as the millennium (Year 2000) approaches.
The "Year 2000" problem is pervasive and complex as virtually every
computer operation will be affected in some way by the rollover of the
two-digit year to 00. The issue is whether computer systems will
<PAGE>F-9
DIGICITIES, INC.
NOTES TO FINANCIAL STATEMENTS
AS OF JUNE 30, 1999
NOTE 6 - COMMITMENTS AND CONTINGENCIES - (CONT'D)
(A) Year 2000 Issues - (CONT'D)
properly recognize date-sensitive information when the year changes to
2000. Systems that do not properly recognize such information could
generate erroneous data or cause a system to fail.
The Company uses a standard off the shelf accounting software package
for all of its accounting requirements. Management has contacted the
software vendor and confirmed that the accounting software is Year 2000
compliant. Management has contacted its critical vendors, suppliers,
and Internet service provider to determine their own Year 2000 efforts
and has not identified any Year 2000 compliance issues with those
parties. Costs of investigating Year 2000 compliance issues have not
been material to date. As a result, management believes that the effect
of investigating and resolving Year 2000 compliance issues will not
have a material effect on the Company's future financial position or
results of operations.
(B) Capital Lease Agreement
The Company leases office equipment under a non-cancelable capital
lease agreement dated February 6, 1999.
Future minimum lease payments under the capital lease are as follows at
June 30, 1999:
2000 $ 3,225
2001 3,225
2002 3,225
2003 1,876
----------
Total future minimum lease payments 11,551
Less: interest 5,625
----------
Present value of future minimum lease payments 5,926
Less: current portion 464
----------
Long-term obligation under capital lease $ 5,462
==========
(C) Operating Lease Agreements
The Company leases office space and equipment under non-cancelable
operating leases. The leases have remaining terms varying from the
years 2000 through 2004.
Future minimum lease payments for the operating leases are as follows
at June 30, 1999:
Years Ending Amount
2000 $ 46,132
2001 57,168
2002 57,168
2003 57,168
2004 10,184
---------
$ 227,820
=========
Rent expense for the period ended June 30, 1999 was $16,700.
<PAGE>F-10
DIGICITIES, INC.
NOTES TO FINANCIAL STATEMENTS
AS OF JUNE 30, 1999
NOTE 7 - RELATED PARTIES
(A) Due to Related Parties
The Company entered into an agreement with Executive Marketing of
California, Inc. ("EMC"), which is owned by two of the Company's
principal stockholders. The agreement calls for EMC to provide all
marketing, customer service, accounting, customer billings, and
management services for digiCities. EMC also receives all monies due
from billings and pays certain operating expenses for the Company. EMC
provides these services exclusively for digiCities. As of June 30,
1999, the amount due to EMC of $29,452 represents net advances made on
behalf of the Company over monies collected on behalf of the Company.
The Company also entered into an agreement with NetCBC, Inc.
("NetCBC"), which is owned by the other two principal stockholders of
the Company. The agreement calls for NetCBC to provide technical
services to the Company including computer bandwidth, dial-up access,
and space for the Company's computers. The agreement calls for NetCBC
to receive $2,982 per month for these services. The Company has
recorded expenses of approximately $17,890 related to these services
through June 30, 1999. NetCBC also pays certain operating expenses for
the Company. As of June 30, 1999, the amount due to NetCBC for
operating expenses and service charges is $103,119.
(B) Due to Stockholder
The Company borrowed $2,500 directly from a 23% stockholder. Due to the
short-term nature of the loan, no interest has been recorded. As of
June 30, 1999, $2,200 is due to the stockholder.
NOTE 8 - INCOME TAX EXPENSE
Current: Income tax expense (benefit) for the years ended June 30, 1999
is summarized as follows:
1999
----
Current
Federal $ -
State -
Deferred -
--------
$ -
========
The Company's tax expense differs from the "expected" tax expense for
the period ended June 30, 1999 (computed by applying the Federal
Corporate tax rate of 34 percent to income (loss) before taxes), as
follows:
1999
----
Computed "expected" tax expense (benefit) $ (89,334)
State income tax -
Change in valuation allowance 89,334
-----------
$ -
<PAGE>F-11
DIGICITIES, INC.
NOTES TO FINANCIAL STATEMENTS
AS OF JUNE 30, 1999
NOTE 8 - INCOME TAX EXPENSE - (CONT'D)
The tax effects of temporary differences that give rise to significant
portions of deferred tax assets and liabilities at June 30 are as
follows:
Deferred tax assets:
Net operating loss carryforward $ 89,334
------------
Total gross deferred tax assets 89,334
Less valuation allowance 89,334
------------
Net deferred tax assets $ -
============
At June 30, 1999, the Company had net operating loss carryforwards of
approximately $262,000 for income tax purposes, available to offset
future taxable income expiring in 2024.
The net change in the valuation allowance during the period ended June
30, 1999 was an increase of $89,334.
NOTE 9 - Going Concern
As reflected in the accompanying financial statements, the Company had
an operating loss of $262,749 and a working capital deficiency of
$327,838. The ability of the Company to continue as a going concern is
dependent on the Company's ability to raise additional capital. The
Company has entered into a merger agreement with a company to provide,
among other things, working capital. That company currently has a going
concern opinion. (See Note 10) The financial statements do not include
any adjustments that might be necessary if the Company is unable to
continue as a going concern.
NOTE 10 - SUBSEQUENT EVENTS
During July, the Company issued 9,305 shares of common stock to
employees, directors and consultants for services.
On September 27, 1999, the Company signed an amended Merger Agreement
and Plan of Reorganization to be acquired by an Internet Services
Company. ("Acquirer") Pursuant to the Merger, the Acquirer will (i)
increase authorized capital stock to 120,000,000 of which 99,000,000
shares shall be Class A common stock, 1,000,000 shall be Class B common
stock, and 20,000,000 shall be preferred stock (ii) issue 3,500,014
shares of the Company's Class A common stock in exchange for all of the
issued and outstanding common stock of digicities, Inc. and (iii) issue
1,500,000 options to purchase the Acquirer's Class A common stock.
<PAGE>F-12
AMERICOM USA, INC.AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
The following unaudited condensed consolidated pro forma balance sheet as of
June 30, 1999 and the unaudited pro forma consolidated statement of operations
for the year ended June 30, 1999 reflect the acquisition of digiCities, Inc. by
Americom USA, Inc. (the "Company") as if the acquisition had occurred on June
30, 1999 for balance sheet purposes and at the beginning of the period for
purposes of the statement of operations. The acquisition was accounted for as a
purchase under the provisions of the Accounting Principles Board Opinion No, 16,
"Business Combinations".
The condensed pro forma consolidated statements of operations for the year ended
June 30, 1999 are based on the historical consolidated financial statements of
the Company and its subsidiaries for the year ended June 30, 1999 and the
historical financial statements of digiCities for the period October 30, 1998
(inception) to June 30, 1999.
The condensed pro forma consolidated financial statements are not necessarily
indicative of the Company's results of operations that might have occurred had
the purchase been completed at the beginning of the period presented, or
indicative of the Company's consolidated financial position or results of
operations for any future date or period.
These unaudited pro forma consolidated financial statements should be read in
conjunction with the historical financial statements and notes thereto
digiCities, Inc. included elsewhere in this document and the financial
statements of Americom USA, Inc. referred to above.
<PAGE>F-13
<TABLE>
<S> <C> <C> <C> <C>
AMERICOM USA, INC. AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
June 30, 1999
(unaudited)
PRO FORMA
HISTORICAL ADJUSTMENTS PRO FORMA
------------------------------------------ ------------------- -------------------------
AMERICOM DIGICITIES, AMERICOM
USA, INC. INC. USA, INC.
-------------------- ------------------- ---------------------
ASSETS
CURRENT ASSETS:
Cash $ 5,497 $ 1,404 $ 6,901
Accounts receivable, net 33,819 293,953 327,772
Other current assets 64,268 -- 64,268
-------------------- ------------------- ---------------------
Total Current Assets 103,584 295,357 398,941
-------------------- ------------------- ---------------------
PROPERTY & EQUIPMENT, net 537,223 94,824 632,047
-------------------- ------------------- ---------------------
OTHER ASSETS
Deposits 20,534 457 20,991
Advances pursuant to merger 520,000 -- 520,000
Kiosk computer software, net 1,441,134 -- 1,441,134
Myline software, net 1,452,556 -- 1,452,556
Goodwill, net 383,528 -- 7,238,047 (1) 7,621,575
-------------------- ------------------- ---------------------
Total Other Assets 3,817,752 457 11,056,256
-------------------- ------------------- ---------------------
TOTAL ASSETS $ 4,458,559 $ 390,638 $ 12,087,244
==================== =================== =====================
LIABILITIES AND STOCKHOLDERS DEFICIENCY
CURRENT LIABILITIES:
Cash overdraft $ -- $ 4,172 $ 4,172
Accounts payable
and accrued liabilities 1,751,093 265,945 2,017,038
Notes and loans payable -
current portion 335,951 10,000 345,951
Notes and loans payable -
related parties 638,145 134,771 772,916
Obligation under capital lease 2,484 464 2,948
Convertible promissory notes 150,000 -- 150,000
Due to factor -- 207,843 207,843
Deferred revenue 2,463 -- 2,463
-------------------- ------------------- ---------------------
Total Current Liabilities 2,880,136 623,195 3,503,331
-------------------- ------------------- ---------------------
CAPITAL LEASE OBLIGATION, net of -- 5,462 5,462
current portion
NOTES AND LOANS PAYABLE, net of
current portion 200,000 -- 200,000
-------------------- ------------------- ---------------------
TOTAL LIABILITIES 3,080,136 628,657 3,708,793
-------------------- ------------------- ---------------------
TOTAL REFUNDABLE COMMON STOCK,net 2,534,064 -- 2,534,064
-------------------- ------------------- ---------------------
STOCKHOLDERS' DEFICIENCY
Common stock 3,252 20,000 (19,650) (1) 3,602
Additional paid in capital 8,416,156 4,730 6,994,948 (1) 15,415,834
Deficit (9,575,049) (262,749) 262,749 (1) (9,575,049)
-------------------- ------------------- ---------------------
TOTAL STOCKHOLDERS' DEFICIENCY (1,155,641) (238,019) 5,844,387
-------------------- ------------------- ---------------------
TOTAL LIABILITIES AND
STOCKHOLDERS' DEFIENCY $ 4,458,559 $ 390,638 $ 12,087,244
==================== =================== =====================
</TABLE>
<PAGE>F-14
AMERICOM USA, INC. AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(unaudited)
<TABLE>
<S> <C> <C> <C> <C>
PRO FORMA
HISTORICAL ADJUSTMENTS PRO FORMA
------------------------------------------ ---------------------------------------------
For the eight
For the year ended months ended For the year ended
June 30, 1999 June 30, 1999 June 30, 1999
AMERICOM DIGICITIES, AMERICOM
USA, INC. INC. USA, INC.
-------------------- ------------------- ---------------------
REVENUES, NET $ 143,591 $ 1,096,177 $ 1,239,768
COST OF SALES 121,873 0 121,873
-------------------- ------------------- ---------------------
GROSS PROFIT 21,718 1,096,177 1,117,895
-------------------- ------------------- ---------------------
OPERATING EXPENSES
Payroll 1,612,659 348,284 1,960,943
Contract services 717,623 255,167 972,790
Amortization 353,206 965,073 (2) 1,318,279
Depreciation 54,624 7,353 61,977
Legal and professional 487,310 5,213 492,523
Consulting 3,417,418 0 3,417,418
Provision for bad debt 21,679 578,888 600,567
Other general and
administrative 956,300 133,905 1,090,205
-------------------- ------------------- ---------------------
TOTAL OPERATING
EXPENSES 7,620,819 1,328,810 9,914,702
-------------------- ------------------- ---------------------
LOSS FROM OPERATIONS (7,599,101) (232,633) (8,796,807)
-------------------- ------------------- ---------------------
OTHER INCOME(EXPENSE)
Gain on debt
forgiveness 5,000 0 5,000
Other income 1,752 0 1,752
Interest expense (98,953) (8,463) (107,416)
Payroll tax penalties (8,097) (8,097)
Factor fees (21,653) (21,653)
-------------------- ------------------- ---------------------
NET OTHER EXPENSES (100,298) (30,116) (130,414)
Income Tax Expense 1,600 0 1,600
-------------------- ------------------- ---------------------
NET LOSS $ (7,700,999) $ (262,749) $ (8,928,821)
==================== =================== =====================
NET LOSS PER COMMON SHARE -
Basic and diluted $ (0.27)
=====================
WEIGHTED AVERAGE SHARES -
Basic and diluted 32,727,090
=====================
</TABLE>
<PAGE>F-15
AMERICOM USA, INC. AND SUBSIDIARIES
NOTES TO CONDENSED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
(1) The pro forma adjustments to the consolidated balance sheet give effect
to the merger as if it occurred on June 30, 1999. The purchase price
has been computed using a $2.00 per share fair market value of the
3,500,014 AmeriCom USA, Inc. common stock shares to be issued to the
digiCities, Inc. stockholders. The $2.00 value is based upon recent
issuances of AmeriCom USA, Inc. common stock for cash pursuant to
private placements.
The purchase price differential is computed as follows:
Purchase price $7,000,028
digiCities, Inc. stockholders' deficiency 238,019
------------
Purchase price differential $7,238,047
==========
Since the merger has not yet closed, the Company has allocated the
purchase price based on the assumption that the historical costs of the
recorded assets and liabilities to be acquired approximate the fair
market value of those assets and liabilities at the merger date.
Accordingly, the purchase price differential of $7,238,047 has been
allocated on a preliminary basis to goodwill pending the development of
additional fair market value data of the acquiree's customer base
intangible asset. The goodwill will be amortized over a period of five
years using the straight-line method.
(2) Amortization of acquired goodwill is based on the assumption that
the acquisition occurred on October 30, 1998, the inception date of
digiCities, Inc.
The pro forma effect of amortization of acquired goodwill over the next
five years is as follows:
2000 $1,447,609
2001 1,447,609
2002 1,447,609
2003 1,447,609
2004 485,382
-----------
$6,272,974
