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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Amendment No. 3
to
FORM 10-SB
GENERAL FORM FOR REGISTRATION OF SECURITIES
OF SMALL BUSINESS ISSUERS UNDER SECTION 12(b)
OR 12 (g) OF THE SECURITIES EXCHANGE ACT OF 1934
SYMPOSIUM CORPORATION
(formerly Symposium Telecom Corporation)
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(Name of Small Business Issuer in Its Charter)
DELAWARE 13-4042921
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
410 Park Avenue, Suite 830, New York, New York 10022
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(Address of Principal Executive Offices) (ZipCode)
(212) 754-9901
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Telephone Number
Securities to be registered under Section 12(b) of the Exchange Act:
None
Securities to be registered under Section 12(g) of the Exchange Act:
common stock, $0.001 par value
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(Title of class)
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PART I
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Item 1. Description of Business........................................................................ 1
Item 2. Management's Discussion and Analysis or Plan of Operation...................................... 8
Item 3. Description of Property........................................................................ 12
Item 4. Security Ownership of Certain Beneficial Owners and Management................................. 13
Item 5. Directors, Executive Officers, Promoters and Control Persons................................... 14
Item 6. Executive Compensation......................................................................... 16
Item 7. Certain Relationships and Related Transactions.................................................. 17
Item 8. Description of Securities...................................................................... 17
PART II
Item 1. Market Price of and Dividends on the Registrants Common Equity and Other Shareholder
Matters........................................................................................ 18
Item 2. Legal Proceedings.............................................................................. 18
Item 3. Changes in and Disagreements with Accountants.................................................. 18
Item 4. Recent Sales of Unregistered Securities........................................................ 18
Item 5. Indemnification of Directors and Officers...................................................... 20
PART F/S
Financial Statements...................................................................................... 21
PART III
Item 1. Index to Exhibits.............................................................................. 22
Item 2. Description of Exhibits........................................................................ 22
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PART I
ITEM 1. DESCRIPTION OF BUSINESS.
Symposium Corporation is engaged principally in telemarketing magazine
and periodical subscription renewals to persons whose subscriptions have
recently expired. The Company commenced operations in the quarter ended
December 31, 1998.
The Company intends to expand business operations through developing or
acquiring niche market businesses in the telecommunications industry. In
December 1998, the Company entered into an agreement to acquire all the
outstanding shares of Hamilton Telecommunications Limited ("Hamilton"), which
is an international audiotext service operator. The international audiotext
business allows customers to access a variety of types of information by
making international direct dial telephone calls that are billed to their
regular monthly telephone bills. In addition, in December 1998, the Company
purchased an option to acquire all of the outstanding capital stock of
Automated Communications Limited ("ACL"), a start-up business which intends
to engage primarily in the provision of international audiotext services to
customers in the United States. See "Hamilton Telecommunications Limited" and
"Automated Communications Limited."
The Company's acquisition of Hamilton is subject to several conditions,
including raising financing of up to at least $5.75 million, and there is no
certainty that the Company will be able to complete the acquisition. In
addition, there is no certainty that the Company will desire or have the
financial resources to exercise the option to acquire ACL.
The Company was incorporated in Delaware in May 1997 as "Brack
Industries, Inc." and changed its name to "Symposium Telecom Corporation" in
June 1998 and to "Symposium Corporation" in May 1999. The Company has one
subsidiary, Publishers Advantage Corporation, through which it operates its
magazine subscription renewal business. References in this Registration
Statement to the "Company" or Symposium" include Symposium Corporation and
Publishers Advantage Corporation.
PUBLISHERS ADVANTAGE
INDUSTRY. According to the Magazine Publishers Association, the
circulation revenues in 1997 in the United States for 562 magazines audited
by the Audit Bureau of Circulation were $9.3 billion, of which $6.3 billion
were from subscriptions. Many of these subscriptions are sold by agencies
unaffiliated with the publishers. Generally, there are no written agreements
between publishers and these unaffiliated agencies other than arrangements
regarding the division of revenues for subscription renewals. The Company
believes that the agencies typically receive more than 75% of the renewal
revenues. Publishers are willing to pay to agents a high percentage of
subscription renewal revenues because they benefit more from a larger
subscriber base, which will generate greater advertising revenues, than from
the subscription renewal revenues.
BUSINESS. Publishers Advantage telemarkets magazine and periodical
subscription renewals to persons whose subscriptions recently expired (known in
the industry as "expires"). Upon obtaining a subscription renewal, Publishers
Advantage remits a portion of the subscription renewal fee to the publisher and
retains the difference as compensation for obtaining the subscription renewal.
Publishers Advantage obtains lists of expires directly from the publishers.
The use of these lists is referred to as "warm calling" because the success rate
is generally greater than the success rate from
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"cold calling." To date, Publishers Advantage has lists of expires only from
Hachette Filipacchi Magazines ("Hachette") for the magazines "Woman's Day,"
"Boating," "Car and Driver," "Flying" and "Popular Photography." The Company
has recently been advised by the publisher of the magazine "U.S. News and
World Report" that it will begin supplying the Company with lists of expires
of that magazine beginning in March 1999. The Company has been able to obtain
these lists of expires primarily through management's contacts at the
publishers and the fact that magazine publishers are often willing to try new
subscription renewal agencies in an attempt to increase the rate of
conversion of expires into subscription renewals. The Company has no contract
with any publisher, including Hachette, obligating the publisher to supply
lists of expires to the Company.
Publishers Advantage has engaged Publishers National Associated Service
("PNAS") to perform on a "turnkey" basis the telemarketing for Publishers
Advantage. By using PNAS for these functions, the Company has been able to
avoid incurring the substantial expenditures and time delays normally
incurred by start-up telemarketing businesses.
PNAS performs these services at a telemarketing call center in Blasdell,
New York. Publishers Advantage's operations occupy approximately 1,200
square-feet of the call center. PNAS provides at its expense the facility,
all telephones, telephone lines, telemarketers, bookkeeping and other
administrative personnel and facilities management. Publishers Advantage
supplies the other computer software and equipment used by the telemarketers.
Publishers Advantage compensates PNAS by paying the agreed upon hourly fee
for each hour worked by each telemarketer.
Persons who sell magazine subscriptions for a publisher must forward the
subscriptions to the publisher through a clearinghouse approved by the
publisher and must pay the clearinghouse a fee to clear the order. Publishers
generally do not grant to a start-up company authority to act as its own
clearinghouse. However, since Publishers Advantage is soliciting the
subscription renewals on behalf of Hachette and Hachette supervises the
pricing of the subscription renewals and the script of the phone
solicitations, Hachette has granted Publishers Advantage authority to act as
its own clearinghouse. Publishers Advantage expects that it will be able to
obtain the same direct authority from any publisher it works with in the
future. Publishers Advantage currently clears its own orders and processes
them through PNAS.
COMPETITION. Most of Publishers Advantage's competitors are
well-established companies with greater financial, marketing, distribution,
personnel and other resources than Publishers Advantage. The industry leaders
in sales of magazine subscriptions are Publishers Clearinghouse and American
Family Publishers, both of which have sales in excess of $800 million, and
which to the knowledge of the Company do not market directly to expires.
There are many companies that compete with Publishers Advantage for lists of
expires from publishers, the largest of which is Dial America. Publishers
Advantage initially competes to obtain these lists primarily on the basis of
contacts between its management and the publishers. Once lists of expires are
obtained from a publisher, Publishers Advantage will compete to continue
receiving these lists from the publisher based on its ability to convert a
higher percentage of those expires to subscription renewals than its
competitors.
GOVERNMENT REGULATION. Publishers Advantage's telemarketing operations are
subject to various Federal and state regulations. The Federal Telephone Consumer
Protection Act of 1991 limits the hours during which telemarketers may call
consumers to between 8:00 a.m. and 9:00 p.m., and prohibits the use of automated
telephone dialing equipment to call certain telephone numbers. The Federal
Telemarketing and Consumer Fraud and Abuse Prevention Act of 1994, and the
Federal Trade Commission ("FTC") regulations promulgated thereunder, prohibit
deceptive, unfair or abusive practices in telemarketing sales.
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Both the FTC and state attorneys general have authority to prevent
telemarketing activities that constitute "unfair or deceptive acts or
practices." Additionally, some states have enacted laws and others are
considering enacting laws targeted directly at telemarketing practices, and
there can be no assurance that any such laws, if enacted, will not adversely
affect or limit Publishers Advantage's current or future operations.
Publishers Advantage's marketing activities and/or products may become
subject to the scrutiny of each of these regulatory agencies. Compliance with
regulations promulgated by these agencies is generally the responsibility of
the telemarketing company, and these companies could be subject to a variety
of enforcement or private actions for any failure to comply with such
regulations. The failure of Publishers Advantage to comply with any rules and
regulations enforced by a Federal or state consumer protection authority may
subject Publishers Advantage or its management to fines or various forms of
civil or criminal prosecution, any of which could materially adversely affect
Publishers Advantage's business, financial condition and results of
operations.
EMPLOYEES
At January 31, 1999, Symposium had one full-time employee (Ronald
Altbach). At that date the Company also had the full-time services of Rupert
Galliers-Pratt, its Chairman of the Board and Chief Executive Officer, through a
consulting arrangement with Executive Management Services. Because Symposium
conducts its telemarketing operations through a third-party telemarketing
company, Symposium does not need a large number of employees.
HAMILTON TELECOMMUNICATIONS LIMITED
The Company has entered into an agreement to purchase all of the
outstanding capital stock of Hamilton Telecommunications Limited, an Irish
corporation ("Hamilton"), which is based in Sark in the Channel Islands.
Hamilton is owned by Panton Management Limited ("Panton") and Northern
Management Limited ("Northern"), which are owned by Robert Green and Marilyn
Shein, respectively.
TERMS OF THE ACQUISITION. The purchase price for Hamilton is $5.75
million plus 1,642,857 shares of the common stock plus contingent
consideration equal to the lesser of: (1) five times the amount, if any, by
which the relevant profits (as defined) of Hamilton for its fiscal year
ending June 30, 1999 exceeds $2.25 million (the relevant profits of Hamilton
for the fiscal year ended June 30, 1998), and (2) $6,000,000. The contingent
consideration is payable 50% in cash and 50% in shares of common stock valued
at $3.50 (accordingly, a maximum of 857,143 additional shares of common stock
may be issued). Completion of the acquisition is conditioned upon Symposium's
common stock being quoted on the OTC Bulletin Board Service and Symposium
raising sufficient funds to satisfy the initial cash consideration. The
sellers may terminate the agreement if the conditions to closing are not
satisfied by June 14, 1999. Symposium is obligated under the agreement to use
reasonable efforts to list the common stock in the Nasdaq Stock Market by
April 2000.
In connection with the acquisition, Symposium will enter into
consulting agreements with Panton (which will provide the services of Mr.
Green), Northern (which will provide the services of Ms. Shein), and
Mediterranean Telecommunications (which will provide the services of Fabrice
Thomas, who interfaces with Hamilton's terminating network operators). The
consulting agreements may be terminated without cause at any time after two
years (three years if the consultant exercises his or her right to extend the
agreement by one year). Symposium has agreed to appoint Mr. Green as a
director of Symposium upon commencement of the consulting agreement and,
subject to shareholder approval, to maintain Mr. Green as a director for as
long as he is a consultant under the agreement. In consideration of their
services, Symposium will pay on a monthly basis consulting fees of $250,000
per year to Mr. Green and
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Ms. Shein and $100,000 per year to Mr. Thomas. In addition, each of the
consultants will be entitled to an annual bonus of 12% of the relevant
profits of Hamilton (but not more than $100,000 for Mr. Thomas).
The Company does not currently have the funds to complete the
acquisition of Hamilton. The Company has commenced a private placement to
raise the $5.75 million, however, the Company has no commitment from, and no
arrangements or understandings with, any party with regard to purchasing any
of the securities offered in the private placement. The terms of the private
placement are as follows: a one year note payable bearing interest at 12% per
annum. Note holders will be issued warrants to expire twelve months after
issuance. There can be no assurance that the private placement will be
successful in securing the necessary funds to complete the acquisition of
Hamilton. If a significant part of such funds are obtained through sales of
equity securities, it is likely that the investors as a group would acquire a
significant equity interest in the Company. The Company has until June 14,
1999 to complete the acquisition of Hamilton or the sellers may terminate the
transaction.
NO ASSURANCE CAN BE GIVEN THAT THE COMPANY WILL BE ABLE TO RAISE THE
FUNDS NECESSARY TO COMPLETE THE ACQUISITION OF HAMILTON.
THE INTERNATIONAL AUDIOTEXT BUSINESS. The international audiotext
business involves the delivery of information pursuant to an international
direct dial telephone call placed by the customer and for which the customer
is billed on his or her regular telephone bill. The customer learns of the
availability of the information through advertising that describes the
service and provides the international telephone number. It is easy for a
customer to access the service because the customer does not need to fill out
an application or provide credit card information for payment. The types of
information delivered may include weather, horoscope readings, lottery
information and ticket purchases, dateline services, sporting event results,
quiz show contests and other competitions, travel information, gaming, adult
services and any other information deliverable by telephone for which there
is consumer demand.
The participants in an international audiotext business include:
ORIGINATING NETWORK OPERATOR: the licensed telephone company of the
customer who originates the telephone call.
TERMINATING NETWORK OPERATOR: the licensed telephone company that
has the international telephone number dialed by the customer (referred to in
the industry as the place where the call "terminates").
CARRIER: the international telephone company that "transits" the
telephone call from the originating country to the terminating network
operator (although it is not necessary that the call be "physically" sent to
the terminating network operator). The carrier may, but does not need to be,
either the originating network operator or the terminating network operator.
INFORMATION PROVIDER: the company that creates the information
which is delivered by telephone to the customer and which advertises the
availability of the information to consumers.
SERVICE OPERATOR: the company that creates the infrastructure which
allows the international audiotext business to operate.
The service operator is the primary motivating force behind any
international audiotext business. The service operator first contracts with a
telephone company in one country to act as terminating network operator and
obtains from that company a group of telephone numbers to be used
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for the business. The service operator then enlists information providers to
join the business and allots one or more of those telephone numbers to
participating providers.
The goal of the business is to generate telephone call minutes by
consumers, which generate revenues that are split among the participants in
the business. The originating network operator receives the payment from the
customer, and pays a portion of this payment to the appropriate terminating
network operator. Payments between the originating and terminating network
operators are governed by the international system for settlement of payment
for telephone calls between countries. Most international telephone companies
belong to the International Telecommunications Union ("ITU"). The settlement
rate (the amount paid to the terminating network operator) is determined by
agreement between those two companies, and is generally 50% of the customer's
payment less any transit fee payable to the carrier. The fee payable to the
terminating network operator is allocated among the terminating network
operator, the service operator and information providers based on the
contracts between the service operator and these participants.
The international audiotext industry originated in the late 1980s/early
1990s as an alternative to premium rate services for delivering information
to consumers by telephone. While premium rate services are similar in many
respects to international audiotext, they differ in that with premium rate
service one telephone number may be used only in one country while with
international audiotext one telephone number may be used all over the world
(or at least in the countries in which the telephone companies participate in
the particular audiotext platform). This is a great advantage for information
providers who solicit business from more than one country. For example, by
using international audiotext, an information provider desiring to advertise
certain information to customers in ten countries in Europe can advertise one
telephone number by satellite television, magazine or otherwise; if that
information provider used premium rate services, it would have to advertise a
different number for each country. In addition, customers of the information
provider using international audiotext may dial the same telephone number
wherever they are in the world (or at least in the countries in which the
telephone companies participate in the particular audiotext platform).
Symposium believes that the international audiotext business will
continue to grow for the following reasons:
- Increasing consumer demand for the types of information that can be
provided by telephone, due in part to the ease in which the consumer
can access the information.
- Increasing interest from telephone companies in sharing in the
revenues that can be generated by this business.
- The fact that historically the business has not depended on economic
conditions.
HAMILTON'S BUSINESS. Hamilton is an international audiotext service
operator established in 1996. It has contracts with two terminating network
operators, one in Sierra Leone in Africa and one in Panama in Central America,
and with information providers serving customers in 14 countries throughout the
world (but excluding the United States). In connection with its Sierra Leone
arrangement, Hamilton has entered into an agreement with Teleglobe
International, Inc. ("Teleglobe"), a subsidiary of Teleglobe Canada, Inc., the
international telephone company of Canada, to act as the carrier to transit
these audiotext calls. For its fiscal years ended June 30, 1997 and 1998,
Hamilton had revenues of $5.7 million and $9.8 million, respectively. For its
six month periods ended December 31, 1997 and 1998, Hamilton had revenues of
$5.2 million and $3.8 million, respectively.
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TERMINATING NETWORK OPERATOR--SIERRA LEONE. Hamilton entered
into a contract with the national telecom company of Sierra Leone ("SierraTel")
in April 1996 pursuant to which SierraTel acts as a terminating network
operator. SierraTel is an attractive terminating network operator because it has
relatively high settlement rates with many international telephone companies.
The contract with SierraTel expires in March 2001. An important part of the
SierraTel contract is that SierraTel has assigned to Hamilton the right to
collect settlement revenues directly from the originating network operators,
thus eliminating any collection issues that could arise if Hamilton was required
to seek payment from SierraTel.
Hamilton's audiotext platform with SierraTel is presently available
only with originating network operators in the following countries (which are
listed in alphabetical order): Austria, Belgium, Denmark, Egypt, France, Greece,
Italy, Portugal, Qatar, Saudi Arabia, Sweden, Switzerland and the United Arab
Emirates.
In connection with its arrangement with SierraTel, Hamilton has entered
into an agreement with TeleGlobe to act as carrier. As part of the agreement,
Teleglobe markets the availability of this platform to information providers
that do business with Teleglobe, which has resulted in additional information
providers joining this platform. In addition, Teleglobe pays Hamilton monthly
regardless of its collections from originating network operators, which provides
Hamilton funds to pay information providers and SierraTel monthly. Lastly, by
using Teleglobe, calls are not physically delivered to Sierra Leone, but are
instead routed through Teleglobe in Canada, thus avoiding the quality and
capacity restraints of the African telephone network.
TERMINATING NETWORK OPERATOR -- PANAMA. In April 1998 Hamilton
entered into an agreement with Cable & Wireless to act as terminating network
operator and carrier for Hamilton. Because Cable & Wireless is the official
international telephone company of Panama, any telephone call made to Panama
from anywhere in the world is automatically transited through the international
network of Cable & Wireless. As a result, although its settlement rate is lower
than SierraTel, the Panama platform is available throughout the world as
compared to the limited number of countries in which the SierraTel platform is
available.
INFORMATION PROVIDERS. During the year ended June 30, 1998,
Hamilton generated revenues through information providers delivering
information in 14 countries. All but one of these information providers utilized
the SierraTel audiotext platform. These information providers receive between
50% and 70% of the net revenues of Hamilton from calls generated by them.
Prior to entering into a contract with an information provider,
Hamilton investigates the provider's record in the business and reviews the
proposed content to be offered. Hamilton will not accept an information provider
if it determines that the character and reputation of the provider make it not
advisable to do business with that provider or the content to be offered
contravenes applicable law.
The one information provider making use of Hamilton's audiotext
platform through Panama provided important technological assistance in the
start-up of the Panama platform. In return for this assistance, Hamilton has
agreed to a unique profit sharing arrangement pursuant to which it pays to this
information provider 92% of the payments received from Cable & Wireless. The
oral agreement can be terminated or renegotiated upon one month's notice by
either party.
MANAGEMENT OF HAMILTON. Hamilton was founded and is presently
managed by Marilyn Shein and Robert Green. Following the acquisition, Ms. Shein
and Mr. Green will enter into
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consulting agreements with the Company, and Mr. Green will be appointed as a
director of Symposium. Along with the services he provides to Hamilton, since
1993, Mr. Green has served as the managing director of Connect Communications
Group, a company that provides discounted international telephone calls to
corporate clients.
COMPETITION. The audiotext industry is currently made up of
approximately five or six major service operators. Some of these service
operators may have longer operating histories, longer relationships with
originating network and terminating network operators around the world and
greater financial and other resources than Hamilton. Among other things, the
service operators in the industry typically compete for exclusive agreements
with terminating network operators. A service operator's ability to compete
for the right to enter into an agreement with a terminating network operator
depends on the quality of the service operator's platform, the ability of the
service operator to attract a large volume of audiotext traffic to the
terminating country and the service operator's overall reputation in the
industry for quality of service. Service operators also compete over
contracts with information providers for information content that is
appealing to callers. Information providers look for service operators with a
reputation for certainty of payment and with a platform that has the ability
not only to service a large volume of calls but to do so with quality
equipment that is free of echoes, delays, static and other audio problems.
EMPLOYEES. Hamilton has no full time employees. Mr. Green, Ms.
Shein and Mr. Thomas provide services to Hamilton as consultants (through
oral consulting agreements between their companies and Hamilton).
GOVERNMENT REGULATION. The management of Hamilton is unaware
of any licensing requirements in Sierra Leone or Panama for service operators
or any regulations specifically governing service operators. However,
Hamilton's platforms operate through the local telephone networks of Sierra
Leone and Panama. These local networks are subject to stringent
telecommunications regulations of their respective countries. Also, the
information providers that Hamilton engages are subject to regulations that
govern the information content that is delivered to the customer. While
Hamilton is unaware of any regulations in the countries in which Hamilton
does business which precludes the international audiotext business in that
country, regulations could be adopted which could materially adversely affect
Hamilton's business, including regulation which limits rates charged to
consumers and/or the content provided to consumers.
AUTOMATED COMMUNICATIONS LIMITED
Symposium has entered into an option agreement to acquire all of the
outstanding capital stock of Automated Communications Limited, a Bahamas
corporation ("ACL"). ACL, which is owned beneficially by Mr. Green, Ms.
Shein and Mr. Thomas, is an international audiotext service operator that
commenced generating revenues in February 1999.
OPTION TERMS. Symposium has agreed to pay an option fee in shares of
common stock having a market value of $2 million if certain conditions are
satisfied, including the completion of the acquisition of Hamilton, the
inclusion of common stock on the OTC Bulletin Board Service, and the
certification by ACL auditors that within nine months of the date of the
agreement ACL had earned in any one month in excess of $100,000. The purchase
price for the ACL shares is an amount equal to the relevant profits of ACL
for the 12-month period ending 18 months following the date the common stock
of Symposium becomes quoted on the OTC Bulletin Board Service, multiplied by
six, less the option fee. The option
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price is payable 50% in cash and 50% shares of common stock (based on the
market value of the common stock). The option is exercisable during a
six-month period following period during which the relevant profits are
calculated. A trust of which Mr. Galliers-Pratt is the beneficiary and Mr.
Altbach are each entitled to 1/18th, and Mr. Bishop is entitled to 1/10th, of
the Option Price pursuant to separate agreements with the shareholders of ACL.
Under the option agreement, Symposium has agreed that without the
approval of Mr. Green or Ms. Shein (which approval may not be unreasonably
withheld) it will not issue any preferred stock (other than in connection
with any financing to complete the Hamilton acquisition) until the earlier to
occur of payment of the option price or the date the common stock of
Symposium is listed on the Nasdaq stock market.
If Symposium exercises its option to acquire ACL, under the
consulting agreements Symposium will pay additional consulting fees of
$250,000 per year to Mr. Green and Ms. Shein and $125,000 per year to Mr.
Thomas (and the fixed fees will double any year the relevant profits of ACL
exceed $15 million). In addition, the bonus under the consulting agreement
will be based on the relevant profits of Hamilton and ACL.
ACL'S BUSINESS. In May 1997 ACL entered into an agreement with
Telecom Malagasi of Madagascar to act as a terminating network operator in
Madagascar. ACL established the Madagascar platform primarily to attract
audiotext traffic from the United States. The settlement rate between the
United States and Madagascar is currently the highest accounting rate in the
world for calls to and from the United States. ACL had agreements with five
information providers for this platform at February 1, 1999, and is currently
soliciting additional information providers.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
RESULTS OF OPERATIONS
Symposium commenced generating revenues from telemarketing in
December 1998. During the year it generated revenues of $13,816 from magazine
subscription renewals and incurred cost of sales of $20,586, resulting in a
gross loss of $6,770. Cost of sales included primarily the hourly fee paid to
PNAS for telemarketers and clearing costs.
During 1998, the Company incurred operating expenses of $312,734,
including $145,838 of consulting expenses and $83,000 of compensation
expenses. Consulting expenses included $69,000 of expenses associated with
the grant of options to consultants and non-employee directors. The
compensation expense was based on the value of contributed services by two
officers, who were not in fact compensated for their services.
As a result, the Company recorded a net loss of $319,504 for 1998.
FINANCIAL CONDITION AND LIQUIDITY
The Company funded its start-up and initial operating costs through
the sales of common stock generating proceeds of $413,412 (net of organizing
costs of $24,926) in 1998. At December 31, 1998 the Company had cash on hand
of $292,194. The Company believes that this cash on hand, together with cash
flows from the subscription renewals, will be sufficient to fund its cash
requirements for its
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subscription renewal telemarketing business in 1999, assuming the Company
continues to utilize PNAS or another third-party telemarketing service for
its telemarketing operations. The Company would need additional financing if
it were to determine to start-up its own telemarketing operations.
The Company has entered into an agreement to acquire Hamilton. Under
the agreement, the Company will pay to Hamilton's shareholders cash in the
amount of $5.75 million at the closing and up to an additional $3.0 million
prior to the end of the year based on Hamilton's results of operations for
the year ended June 30, 1999. See "Business--Hamilton Telecommunications
Limited." The Company must raise the funds for at least the first of these
payments in order to complete the acquisition. The Company has no commitment
from any person to provide these funds, and no assurance can be given that
the Company will be able to raise the funds on terms acceptable to the
Company. The Company is unable to predict the terms and conditions of any
loans it obtains or securities it issues to obtain these funds. If a
significant part of these funds is raised through the sale of equity
securities, it is likely that the investors as a group would acquire a
significant equity interest in the Company. If the Company cannot raise these
funds by June 14, 1999, the sellers will have the right to terminate the
agreement without liability to the Company.
YEAR 2000 ISSUES
Many existing computer programs were designed and developed without
considering the upcoming change in the century, which could lead to the
failure of computer applications or create erroneous results by or at the
Year 2000. The Year 2000 issue is a broad business issue, whose impact
extends beyond traditional computer hardware and software to possible failure
of automated systems and instrumentation. Based on its current assessment,
the Company believes that the limited amount of software and automated
systems and instrumentation that it owns is Year 2000 compliant. However, the
Company relies on local telephone companies to be able to provide its
telemarketing services. While the Company believes that these telephone
companies have devoted substantial amounts of time and money to ensure that
their equipment is Year 2000 compliant, if they are unable to identify Year
2000 issues and are unable to resolve such issues in a timely manner, it
could result in a material financial risk to the Company. Also, there can be
no guarantee that other third parties of business importance to the Company,
such as PNAS, will successfully reprogram or replace, and test, all of their
own computer hardware, software and process control systems to ensure such
systems are Year 2000 compliant.
CERTAIN INVESTMENT CONSIDERATIONS
DEPENDENCE ON PNAS FOR TELEMARKETING SERVICES
Publishers Advantage depends on PNAS to perform the Company's
telemarketing operations. Publishers Advantage's engagement of PNAS will
terminate in December 1999 and there is no assurance that PNAS will renew the
arrangement. Although there are other companies that provide similar
services, there is no assurance that Publishers Advantage would be able to
engage an acceptable replacement by the time the arrangement with PNAS
terminates. If the Company's engagement of PNAS is terminated, the Company
would not generate any revenues during the period that it has no agreement
with a telemarketing service company to perform these services for the
Company and it does not have the capability of performing these services with
its own personnel.
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NEED TO OBTAIN LISTS OF EXPIRES
The success of the Company's telemarketing business is subject to a
number of risks and uncertainties, including the ability to obtain lists of
expires directly from publishers. To date, the Company has received lists of
expires from only one publisher (Hachette Filipacchi Magazines) for four
magazines ("Boating," "Car and Driver," "Flying" and "Popular Photography")
and the promise from one other publisher to provide lists of expires
commencing March 1999. The Company has been able to obtain these lists
primarily through its contacts with the management of these publishers and
the willingness of publishers to try new subscription renewal agencies in
order to improve their conversion rate of expires to subscription renewals.
The Company has no agreement with any publisher that requires the publisher
to supply these lists to the Company. The ability of the Company to obtain
these lists will depend in substantial part on its success rate in generating
renewals from expires. There can be no assurance that the Company will have
an acceptable success rate or will continue to receiving these lists from any
publisher.
LIMITED OPERATING HISTORY
The Company commenced telemarketing operations in the fourth quarter
of 1998. Therefore, the Company has a limited relevant operating history upon
which to evaluate the likelihood of its success. Factors such as the risks,
expenses and difficulties frequently encountered in the operation and
expansion of a relatively new business and the development and marketing of
new products must be considered in evaluating the likelihood of the Company's
success.
INFLUENCE BY MANAGEMENT
The Company's officers and directors beneficially own, in the
aggregate, approximately 22.9% of the outstanding common stock of the
Company. These persons will continue to exert influence over the outcome of
all matters submitted to a vote of the holders of common stock, including the
election of directors, amendments to the Company's Certificate of
Incorporation and approval of significant corporate transactions. This
consolidation of voting power could also have the effect of delaying,
deterring or preventing a change in control of the Company that might be
beneficial to other stockholders.
YEAR 2000 ISSUES
Many existing computer programs were designed and developed without
considering the upcoming change in the century, which could lead to the
failure of computer applications or create erroneous results by or at the
Year 2000. The Year 2000 issue is a broad business issue, whose impact
extends beyond traditional computer hardware and software to possible failure
of automated systems and instrumentation. Based on its current assessment,
the Company believes that the limited amount of software and automated
systems and instrumentation that it owns is Year 2000 compliant. However, the
Company relies on local telephone companies to be able to provide its
telemarketing services. While the Company believes that these telephone
companies have devoted substantial amounts of time and money to ensure that
their equipment is Year 2000 compliant, if they are unable to identify Year
2000 issues and are unable to resolve such issues in a timely manner, it
could result in a material financial risk to the Company. Also, there can be
no guarantee that other third parties of business importance to the Company,
such as PNAS, will successfully reprogram or replace, and test, all of their
own computer hardware, software and process control systems to ensure such
systems are Year 2000 compliant.
10
<PAGE>
ACQUISITIONS OF HAMILTON AND ACL
A significant part of the Company's growth strategy is to acquire
niche market businesses in the telecommunications industry. In furtherance of
this strategy, the Company has entered into the following agreements: (i) an
agreement to purchase all of the outstanding capital stock of Hamilton and
(ii) an option agreement to acquire all of the outstanding capital stock of
ACL. The Company's ability to complete these acquisitions is subject to
several conditions, including having the funds to pay the cash portion of the
purchase price ($5.75 million for Hamilton). The Company must raise these
funds to complete the Hamilton acquisition, and will probably be required to
raise at least a significant portion of the funds needed to complete the ACL
acquisition. To raise these funds, the Company anticipates issuing debt
and/or equity securities. The Company is unable to predict the terms and
conditions of such securities or the price for such securities. If a
significant part of such funds are obtained through sales of equity
securities, it is likely that the investors as a group would acquire a
significant equity interest in the Company. The Company has until June 14,
1999 to complete the acquisition of Hamilton or the sellers may terminate the
transaction. In addition, ACL is a start-up operation, and there is no
certainty the Company will determine it to be advantageous to exercise its
option. No assurance can be given that the Company will complete the
acquisition of either Hamilton or ACL.
SUBSTANTIAL GOODWILL FOR FINANCIAL REPORTING PURPOSES. The Company
expects to account for the acquisitions using the purchase method of
accounting. Accordingly, either acquisition will result in the Company
recording a significant amount of goodwill (substantially all the purchase
price) for financial reporting purposes. It is anticipated that the goodwill
recorded in connection with the Hamilton acquisition will exceed $10 million.
The goodwill will be amortized to reduce income over its expected life.
Because of the uncertainty of the purchase price for ACL, it is not possible
to estimate the amount of goodwill which would result from that acquisition.
RAPID GROWTH. The acquisitions of Hamilton and/or ACL would result
in rapid and substantial growth in revenues and geographic scope of
operations. This could place a significant strain on management and on the
Company's financial resources. The failure to recruit additional staff and
key personnel, to have sufficient financial resources, to maintain or upgrade
these financial reporting systems, or to respond effectively to difficulties
encountered during expansion could have a material adverse effect on the
Company's business, operating results and financial condition.
POTENTIAL DIFFICULTIES IN EXPANDING INTERNATIONAL AUDIOTEXT BUSINESS.
The ability of Hamilton to expand its international audiotext
business will depend on a number of factors. Hamilton would need to identify
originating network operators in countries which have settlement rates with
Hamilton's terminating network operators which are high enough to make the
business profitable. With respect to the SierraTel platform, Hamilton will be
required to negotiate an acceptable arrangement with an originating network
operator in each new country (and in most countries there is only one
potential originating network operator). This is a time consuming process, in
some cases extending over a year. In addition, the ability to negotiate an
acceptable arrangement at all is subject to many factors beyond the control
of Hamilton, including political factors in the country and pre-existing
arrangements the originating network operator may have. There can be no
assurance that Hamilton will succeed in engaging originating network
operators in new countries.
RELIANCE UPON KEY PERSONNEL. To date, the business of Hamilton has
depended on Robert Green and Marilyn Shein. They will enter into two-year
consulting contracts with Hamilton at the closing of the acquisition, and
there is no assurance they will remain longer with Hamilton. The long-term
success of the Company in the international audiotext business will depend in
part on the ability of the Company to successfully implement a succession
strategy to reduce dependence on these individuals.
11
<PAGE>
SUBSTANTIAL RELIANCE UPON ONE INFORMATION PROVIDER. One information
provider accounted for approximately 25% of Hamilton's total revenues in its
year ended June 30, 1998. Hamilton does not have a long-term agreement with
this provider. The termination of Hamilton's relationship with this
information provider would have a material adverse effect on Hamilton's
results of operations.
GOVERNMENT REGULATION. The international telephone industry is
subject to the stringent government regulation in each originating country
that phone calls are terminated from. While the Company is unaware of any
regulation in the countries in which Hamilton does business which precludes
the international audiotext business in that country, regulation could be
adopted which could materially adversely affect the Hamilton's business,
including regulation which limits rates charged to consumers and/or the
content provided to consumers.
YEAR 2000 ISSUES. Many existing computer programs were designed and
developed without considering the upcoming change in the century, which could
lead to the failure of computer applications or create erroneous results by
or at the Year 2000. The Year 2000 issue is a broad business issue, whose
impact extends beyond traditional computer hardware and software to possible
failure of automated systems and instrumentation. Based on Hamilton's current
assessment, the costs of addressing potential problems are not currently
expected to have a material adverse impact on its financial position, results
of operations or cash flows in future periods. However, Hamilton relies on
local and international telephone companies to be able to provide its
audiotext services. While Hamilton believes that these telephone companies
have devoted substantial amounts of time and money to ensure that their
equipment is Year 2000 compliant, if they are unable to identify Year 2000
issues and are unable to resolve such issues in a timely manner, it could
result in a material financial risk to Hamilton. Also, there can be no
guarantee that other third parties of business importance to the Hamilton
will successfully reprogram or replace, and test, all of their own computer
hardware, software and process control systems to ensure such systems are
Year 2000 compliant.
ITEM 3. DESCRIPTION OF PROPERTY.
Symposium does not currently own or lease any property. The
Company's principal offices are located at both the offices of Ronald
Altbach, Co-Chairman of the Board and Chief Operating Officer, at 410 Park
Avenue, 18th Floor, New York, New York 10022 and at the offices of Rupert
Galliers-Pratt, Co-Chairman of the Board and Chief Executive Officer, at 54
St. James' Street, London SWI, England.
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<PAGE>
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.
The following table sets forth as of January 31, 1999 certain
information relating to the ownership of the common stock by (i) each person
known by Symposium to be the beneficial owner of more than 5% of the
outstanding shares of the common stock, (ii) each of Symposium's directors,
(iii) each of Symposium's Named Executive Officers, and (iv) all of
Symposium's Named Executive Officers and directors as a group. Except as may
be indicated in the footnotes to the table and subject to applicable
community property laws, each of such persons has the sole voting and
investment power with respect to the shares owned.
<TABLE>
<CAPTION>
Name and Address of Beneficial Amount and Nature of Beneficial
Owner(1) Ownership(2) Percent of Class(2)
------------------------------ ------------------------------- -------------------
<S> <C> <C>
The Shropshire Trust Company, Ltd . . . . . 1,200,000(3) 16.1%
M.L.H. Quin & Co.
Bermuda Commercial Bank Bldg.
44 Church Street
Hamilton HM 12
Bermuda
Ronald Altbach . . . . . . . . . . . . . . . 1,000,000(4) 13.4
Tyman Holdings, Inc. . . . . . . . . . . . . 650,000(5) 8.7
Thomas McGlew. . . . . . . . . . . . . . . . 650,000(5) 8.7
Adam Bishop. . . . . . . . . . . . . . . . . 650,000(5) 8.7
Richard Cohen. . . . . . . . . . . . . . . . 50,000(6) *
Ken Levine . . . . . . . . . . . . . . . . . 8,572(7) *
Rupert Galliers-Pratt. . . . . . . . . . . . 0 *
All officers and directors as a group
(6 persons). . . . . . . . . . . . . . . . . 1,708,572(8) 22.9%
</TABLE>
- ----------------
* Less than 1%
(1) Unless otherwise indicated, the address of each beneficial owner is
in the care of Symposium Corporation, 410 Park Avenue, 18th Floor,
New York, NY 10022.
(2) Unless otherwise indicated, Symposium believes that all persons
named in the table have sole voting and investment power with
respect to all shares of common stock beneficially owned by them. A
person is deemed to be the beneficial owner of securities that may
be acquired by such person within 60 days from the date of this
registration statement upon the exercise of options, warrants or
convertible securities. Each beneficial owner's percentage of
ownership is determined by assuming all options, warrants or
convertible securities that are held by such person (but not held by
any other person) and which are exercisable or convertible within 60
days of this registration statement have been exercised or
converted. Percent of Class (third column above) is based on
7,455,464 shares of common stock outstanding as of the date of this
registration statement.
(3) Shropshire Trust Company Ltd. is an independent trust company and is
unaffiliated with Symposium other than as a beneficially owner of
1,200,000 shares as trustee for Shropshire Trust No. 1, Shropshire
Trust No. 2, Shropshire Trust No. 3 and Shropshire Trust No. 4, each
of which holds 300,000 shares of common stock. The beneficiaries of
the Shropshire Trust No. 1, Shropshire Trust No. 2, Shropshire Trust
No. 3 and Shropshire Trust No. 4 are the children of Rupert
Galliers-Pratt.
(4) Includes 475,000 shares of common stock owned by his wife, Elka
Altbach. Does not include 150,000 shares of common stock issuable
upon exercise of stock options exercisable commencing upon December
3, 1999.
(5) These shares are held of record by Tyman Holdings, Inc. Tyman
Holdings, Inc. is held by St. Georges Trust. Derek Baudains
and Grenedier International, a Panama corporation, are the trustees
of St. Georges Trust, both of which are unaffiliated with Symposium.
Thomas McGlew and Adam Bishop are the beneficiaries of St. Georges
Trust and also have voting and dispositive power over the property
held by St. Georges Trust and therefore are the beneficial owners of
these shares.
(6) Does not include 70,000 shares of common stock issuable upon the
exercise of stock options exercisable commencing upon October 9,
1999.
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<PAGE>
(7) Does not include 70,000 shares of common stock issuable upon the
exercise of stock options exercisable commencing upon December 3, 1999.
Mr. Levine resigned from the Board of Symposium in April 1999.
(8) Does not include 290,000 shares of common stock issuable upon
exercise of stock options that are exercisable at various times
commencing October 9, 1999
ITEM 5. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS.
The following table sets forth certain information with respect to the
directors and executive officers of Symposium as of April 24, 1999.
<TABLE>
<CAPTION>
Name Age Position
- ---- --- --------
<S> <C> <C>
Rupert Galliers-Pratt . . . . . . 47 Chief Executive Officer and Co-Chairman of the Board
Ronald Altbach. . . . . . . . . . 52 Co-Chairman of the Board, Chief Operating Officer,
acting Chief Financial Officer, Secretary and Director
Thomas McGlew . . . . . . . . . . 45 Director
Adam Bishop . . . . . . . . . . . 40 Director
Richard Cohen . . . . . . . . . . 48 Director
</TABLE>
MR. GALLIERS-PRATT has served as a Co-Chairman of the Board of
Symposium since October 1998 and the Chief Executive Officer of Symposium
since December 1998. Previously, he served as Chairman and Chief Executive
Officer of Petersburg Long Distance, Inc. ("PLD") from 1992 to 1995. During
the period in which Mr. Galliers-Pratt served as Chairman and Chief Executive
Officer, PLD raised $200 million in equity and debt financings, obtained a
license to construct and operate a digital overlay telephone network in St.
Petersburg, Russia, and acquired a 50% interest in a company which had been
granted a license to install and operate a national cellular system in
Kazakhstan. As PLD's activities expanded, Mr. Galliers-Pratt recognized the
need for an alliance with a larger telecommunications company, which led to
an acquisition of about one-third of PLD by Cable & Wireless PLC in 1994.
Having successfully completed the establishment and funding of the first
phase of PLD's activities, Mr. Galliers-Pratt turned over the role of Chief
Executive Officer to a Cable & Wireless-appointed executive in 1994 and
relinquished the role of Chairman in 1995. Since 1995, Mr. Galliers-Pratt has
assisted with the formation and financing of a number of other companies. He
served on the Board of Oriel Group plc, a London insurance brokering company,
which he assisted with a number of financings until the successful sale of
that company in August 1998. He has also served as a director of LOOX Ltd. an
optical retailing company with operations in Austria and Poland. He has also
served as Chairman of Princess Resources, a natural resource exploration
company with operations in China and East Africa.
In January 1994 Lightship PLC, of which Mr. Galliers-Pratt was the
Chairman of the Board, and its subsidiaries entered voluntary liquidation
proceedings. Lightship PLC, based in London, England, was engaged in a
variety of consumer and small business financing businesses through wholly
owned subsidiaries; Mr. Galliers-Pratt was not involved in the management of
the operating subsidiaries. In 1996, LOOX Ltd. filed an admission prospectus
with the London Stock Exchange. The prospectus
14
<PAGE>
inadvertently failed to disclose his directorship in several companies,
including subsidiaries of Lightship PLC which, like Lightship, had filed for
voluntary receivership or bankruptcy proceedings (the receivership of
Lightship was disclosed). When Mr. Galliers-Pratt became aware of these
omissions, he immediately notified the London Stock Exchange and provided the
Exchange with the necessary corrections. Although the London Stock Exchange
censured Mr. Galliers-Pratt in connection with this event, in its public
announcement it stated that it accepted that the omissions were unintentional.
MR. ALTBACH has served as a Co-Chairman of the Board since October 1998
and the Chief Operating Officer, acting Chief Financial Officer and Secretary of
Symposium since December 1998. From 1996 through June 1998 he served as Vice
Chairman of Rosecliff, Inc., a New York based merchant banking operation. From
1995 through 1997, Mr. Altbach served as Chairman of Paul Sebastian, Inc., one
of Rosecliff's portfolio companies,. Mr. Altbach left Rosecliff to form
Symposium with Mr. Galliers-Pratt. From November 1988 through December 1994 and
from February 1998 through December 1998, Mr. Altbach was the President of
Olcott Corporation, a distributor of luxury products.
MR. MCGLEW has served as a director of Symposium since October 1998. He
is currently Chief Executive Officer of Telemonde, Ltd., a fiber cable provider
to telecom carriers. From June 1997 through September 1998, Mr. McGlew served as
Vice President of International Commercial Operations for WorldCom
International. He was responsible for an international revenue line covering
basic and enhanced services across voice, data and Internet products and was
specifically responsible for the global portfolio and commercial operations
worldwide outside North America. From September 1993 to June 1997, Mr. McGlew
was the Head of Marketing and the Director of Distribution for British Telecom.
MR. BISHOP has served as a director of Symposium since October 1998.
Mr. Bishop is currently Chief Executive Officer of European Gateway, a
subsidiary of North American Gateway Inc. of Canada. European Gateway is
principally a carriers' carrier, which sells international traffic routes to
the worlds' largest telecom operators. Previously, Mr. Bishop was a senior
executive with British Telecom in its International Carrier Sales division.
During his tenure at British Telecom, Mr. Bishop and Mr. McGlew together
implemented a wholesale carrier strategy which employed joint venture
carrier-partners to create new routes in developing countries.
MR. COHEN has served as a director of Symposium since October, 1998.
Mr. Cohen has been the president of Richard M. Cohen Consultants, which
provides financial consulting services primarily in the multimedia industry,
since January 1996. From March 1993 to December 1995, Mr. Cohen served as the
President of General Media, Inc. Mr. Cohen has been involved in advising and
managing a number of financings in both the public and private sectors. Mr.
Cohen currently serves on the Board of Directors of both National Auto Credit
and Carnegie Int'l.
Directors are elected at each annual meeting of stockholders and hold
office until the following annual meeting and their successors are duly elected
and qualified. Executive officers of Symposium serve at the discretion of the
Board of Directors.
15
<PAGE>
ITEM 6. EXECUTIVE COMPENSATION.
DIRECTOR COMPENSATION
With the exception of the grant options to purchase 70,000 shares of
common stock to each of Richard Cohen and Ken Levine, Symposium has not paid any
compensation to directors for their services as directors of Symposium.
EXECUTIVE COMPENSATION
The Company did not pay any cash compensation to any executive
officer for the year ended December 31, 1998. Commencing January 1, 1999, the
Board of Directors authorized annual salaries to the executive officers, as
follows: Mr. Galliers-Pratt -- $250,000 (payable as consulting fees to his
company Executive Management Services) and Mr. Altbach -- $225,000.
STOCK OPTION PLAN
The Company has a Stock Option Plan (the "1998 Plan") which provides
for the issuance of up to 1,000,000 shares of common stock pursuant to options
granted from time to time to directors, officers, employees and consultants.
Unless extended or terminated sooner by the Board of Directors, the 1998 Plan
will terminate on December 31, 2007.
The 1998 Plan may be administered by the Company's Board of Directors
or, at the discretion of the Board, a committee of two or more directors (the
"Administrator"). Subject to the provisions of the 1998 Plan, the Administrator
will have full and final authority to select persons to whom options will be
granted and to determine the terms and conditions of the options.
Options granted under the 1998 Plan may, at the discretion of the
Administrator, either be "incentive stock options" within the meaning of Section
422 of the Internal Revenue Code of 1986, as amended (the "Code"), or options
which do not qualify as "incentive stock options." The exercise price of an
incentive stock option may not be less than the fair market value of a share of
common stock on the date of grant. There is no limitation on the exercise price
of options that are not incentive stock options. No participant may receive
options representing more than 50% of the aggregate number of shares of common
stock that may be issued pursuant to all options under the 1998 Plan. An option
may provide for the issuance of common stock for any lawful consideration,
including services rendered or, to the extent permitted by applicable state law,
to be rendered. Currently, Delaware law does not permit the issuance of common
stock for services to be rendered.
OPTION GRANTS IN LAST FISCAL YEAR
(INDIVIDUAL GRANTS)
<TABLE>
<CAPTION>
NUMBER OF SECURITIES PERCENT OF TOTAL
UNDERLYING OPTIONS OPTIONS GRANTED TO EXERCISE EXPIRATION
NAME GRANTED EMPLOYEES IN FISCAL YEAR PRICE DATE
<S> <C> <C> <C> <C>
Ronald Altbach 150,000 100% $1.00 12/3/02
</TABLE>
- -----------------------
16
<PAGE>
Mr. Galliers-Pratt provides his services to the Company through a
consulting agreement Symposium has with Executive Management Services. On
December 3, 1998, the Company granted 200,000 options, exercisable in full on
December 3, 1999 at $1.00 per share, to Executive Management Services. This
option terminates on December 3, 2002.
AGGREGATED FISCAL YEAR END OPTION EXERCISES AND FISCAL YEAR END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING
SHARES UNEXERCISED OPTIONS AT VALUE OF UNEXERCISED
ACQUIRED ON VALUE DECEMBER 31, 1998 IN-THE-MONEY OPTIONS
EXERCISE REALIZED -------------------------------- -----------------------------
NAME (#)(1) ($)(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- -------------- ---------- ------------ --------------- ------------ --------------
<S> <C> <C> <C> <C> <C> <C>
Ronald Altbach 0 -- 0 150,000 0 0
</TABLE>
- ----------------
(1) No options were exercised in fiscal year 1998.
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Symposium has an option to purchase all of the outstanding stock of
ACL. See "Business -- Automatic Communications Limited." If the Company
exercises the option, Adam Bishop would be entitled to 1/10th of the exercise
price and a trust of which Rupert Galliers-Pratt is the beneficiary and
Ronald Altbach would each be entitled to 1/18th of the exercise price.
ITEM 8. DESCRIPTION OF SECURITIES.
COMMON STOCK
Symposium is authorized to issue 25,000,000 shares of common stock,
par value $0.001 per share, and 10,000,000 shares of preferred stock, par
value $0.001 per share. Holders of common stock are entitled to one vote for
each share held of record on all matters on which the holders of common stock
are entitled to vote. The holders of common stock are entitled to receive
ratable dividends when, as and if declared by the Board of Directors out of
funds legally available therefor. In the event of liquidation, dissolution or
winding up of Symposium, the holders of common stock are entitled, subject to
the rights of holders of preferred stock issued by Symposium, if any, to
share ratably in all assets remaining available for distribution to them
after payment of liabilities and after provision is made for each class of
stock, if any, having preference over the common stock. The holders of common
stock have no preemptive or conversion rights and they are not subject to
further calls or assessments by Symposium. There are no redemption or sinking
fund provisions applicable to the common stock. The outstanding shares of
common stock are, and the common stock issuable pursuant to this prospectus
will be, when issued, fully paid and nonassessable.
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<PAGE>
PREFERRED STOCK
Symposium is authorized to issue "blank check" preferred stock in
one or more series from time to time with such designations, rights and
preferences as may be determined from time to time by the Board of Directors.
Accordingly, the Board of Directors is empowered, without stockholder
approval, to issue preferred stock with dividend, liquidation, conversion,
voting or other rights which adversely affect the voting power or other
rights of the holders of Symposium's common stock. In the event of issuance,
the preferred stock could be utilized, under certain circumstances, as a way
of discouraging, delaying or preventing an acquisition or change in control
of Symposium.
PART II
ITEM 1. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON
EQUITY AND OTHER SHAREHOLDER MATTERS.
There is currently no market for Symposium's common stock. Symposium
has never paid cash dividends on its common stock. Payment of future
dividends will be within the discretion of Symposium's Board of Directors and
will depend on, among other factors, retained earnings, capital requirements
and the operating and financial condition of Symposium.
ITEM 2. LEGAL PROCEEDINGS.
Symposium is not currently a party to any pending legal proceedings.
ITEM 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS.
Weinberg & Company ("Weinberg") audited the balance sheet of Symposium
as of July 20, 1998 in a single purpose engagement. During the Symposium's two
most recent fiscal years: (i) the Company had no disagreements with Weinberg,
whether or not resolved, on any matter of accounting principles or practices,
financial statement disclosure, or auditing scope or procedure, which, if not
resolved to Weinberg's satisfaction, would have caused it to make reference to
the subject matter of the disagreement in connection with an accounting report;
and (ii) Weinberg did not advise the Company of any of the events that would
have required reporting in a Form 8-K under Item 304(a)(iv)(B).
The Company engaged Grant Thornton LLP as its principal independent
auditors for the year ended December 31, 1998. Prior to such engagement, the
Company did not consult with Grant Thornton LLP regarding the application of
accounting principles to a specific, completed or contemplated transaction, or
the type of audit opinion that might be rendered on the Symposium's financial
statements.
ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES.
THE FOLLOWING DESCRIPTIONS REFLECT A 1-FOR-2 REVERSE STOCK SPLIT
EFFECTIVE AS OF OCTOBER 7, 1998.
1. In July 1998, Symposium issued to PageOne Business Productions, LLC
and AppleTree Investment Co., an aggregate of 9,200 shares of common stock in
consideration of organizational costs valued at $184. These shares were issued
without registration under the Securities Act in reliance upon
18
<PAGE>
the exemption from registration under Section 4(2) the Securities Act as a
transaction not involving a public offering.
2. From July 1998 through October 1998, Symposium issued an aggregate
of 328,264 shares of common stock to PageOne Business Productions, LLC,
AppleTree Investment Co., Ltd., Kevin Welch and Deremie Enterprises Limited for
$0.02 per share.
On October 9, 1998, Symposium issued 6,658,800 shares of common
stock for $0.01 per share to 31 investors. None of these investors were
previously affiliated with any shareholders of Symposium.
Following the October 9, 1998 issuance, a new board and a new
executive management team was put in place for Symposium. The new management
brought with it new business prospects and opportunities including the
commencing of operations of Publishers Advantage and the acquisitions of
Hamilton and ACL. As a result, Symposium was able to sell its stock at a
higher price. An offering was commenced to raise additional capital and from
October 29, 1998 through January 1999, Symposium issued an aggregate of
450,000 shares of common stock for $1.00 per share to Cresta Limited, Growise
Investment, Ltd., The Mandel Company, T. Hoare Nominees Limited, Svea
Balfour, Felcom Capital Corporation, William Dartmouth and John Miller. None
of these investors were previously affiliated with Symposium or any
shareholders of Symposium. Symposium granted to Growise Investment, Ltd.
warrants to purchase 3,500 shares of common stock for $1.00 per share as a
finders' fee for introducing Symposium to Felcom Capital Corporation.
The foregoing issuances of common stock were exempt from registration
under of the Securities Act of 1933, as amended, pursuant to Section 3(b)
thereof and Rule 504 because, at the time of the issuances: (i) Symposium was
not subject to reporting requirements under Section 13 or 15(d) of the
Securities Exchange Act of 1934, as amended; (ii) Symposium was not an
investment company; (iii) Symposium was not a development stage company that
either had no specific plan or purpose or that indicated that its business plan
was to engage in a merger or acquisition with an unidentified company or
companies; and (iv) the aggregate price for all shares issued by the Company
since inception was less than $1 million.
3. In December 1998, Symposium issued warrants to each of Tom Mosey
and Growise Investment Ltd. warrants to purchase 10,000 shares of the common
stock of Symposium for $1.00 per share in consideration of consulting
services provided by these persons. The warrants were issued without
registration under the Securities Act in reliance upon the exemption from
registration under Section 4(2) of the Securities Act as a transaction not
involving a public offering, based on: (1) the fact that Mr. Mosey and
Growise Investment Ltd. were accredited investors and represented that they
were acquiring the warrants for investment purposes; and (2) the Company did
not engage in any general advertisement or general solicitation in connection
with the issuance of the warrants.
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<PAGE>
ITEM 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Symposium's Certificate of Incorporation and its Bylaws provide for the
indemnification by Symposium of each director, officer and employee of Symposium
to the fullest extent permitted by the Delaware General Corporation Law, as the
same exists or may hereafter be amended. Section 145 of the Delaware General
Corporation Law provides in relevant part that a corporation may indemnify any
person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative (other than an action by or in the
right of the corporation) by reason of the fact that such person is or was a
director, officer, employee or agent of the corporation, or is or was serving at
the request of the corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
against expenses (including attorneys' fees), judgments, fines and amounts paid
in settlement actually and reasonably incurred by such person in connection with
such action, suit or proceeding if such person acted in good faith and in a
manner such person reasonably believed to be in or not opposed to the best
interests of the corporation, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe such person's conduct was
unlawful.
In addition, Section 145 provides that a corporation may indemnify any
person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action or suit by or in the right of the
corporation to procure a judgment in its favor by reason of the fact that such
person is or was a director, officer, employee or agent of the corporation, or
is or was serving at the request of the corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise against expenses (including attorneys' fees) actually and
reasonably incurred by such person in connection with the defense or settlement
of such action or suit if such person acted in good faith and in a manner such
person reasonably believed to be in or not opposed to the best interests of the
corporation and except that no indemnification shall be made in respect of any
claim, issue or matter as to which such person shall have been adjudged to be
liable to the corporation unless and only to the extent that the Delaware Court
of Chancery or the court in which such action or suit was brought shall
determine upon application that, despite the adjudication of liability but in
view of all the circumstances of the case, such person is fairly and reasonably
entitled to indemnity for such expenses which the Delaware Court of Chancery or
such other court shall deem proper. Delaware law further provides that nothing
in the above-described provisions shall be deemed exclusive of any other rights
to indemnification or advancement of expenses to which any person may be
entitled under any bylaw, agreement, vote of stockholders or disinterested
directors or otherwise.
Symposium's Certificate of Incorporation provides that a director of
Symposium shall not be liable to Symposium or its stockholders for monetary
damages for breach of fiduciary duty as a director. Section 102(o)(7) of the
Delaware General Corporation Law provides that a provision so limiting the
personal liability of a director shall not eliminate or limit the liability of a
director for, among other things: breach of the duty of loyalty; acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of the law; unlawful payment of dividends and transactions from which
the director derived an improper personal benefit.
Symposium has entered into separate but identical indemnity agreements
(the "Indemnity Agreements") with each director of Symposium (the
"Indemnitees"). Pursuant to the terms and conditions of the Indemnity
Agreements, Symposium indemnified each Indemnitee against any amounts which he
or she becomes legally obligated to pay in connection with any claim against him
or her based upon any action or inaction which he or she may commit, omit or
suffer while acting in his or her capacity as a director of Symposium or its
subsidiaries, provided, however, that Indemnitee acted in good faith and in a
20
<PAGE>
manner Indemnitee reasonably believed to be in or not opposed to the best
interests of Symposium and, with respect to any criminal action, had no
reasonable cause to believe Indemnitee's conduct was unlawful.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers, and controlling persons of
Symposium pursuant to the above statutory provisions or otherwise, Symposium has
been advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable.
PART F/S
The following financial statements are filed with this Form 10-SB:
PRO FORMA COMBINED FINANCIAL STATEMENTS
SYMPOSIUM CORPORATION
Introduction to Unaudited Pro Forma Combined Financial Statements
Unaudited Pro Forma Combined Balance Sheet as of December 31, 1998
Unaudited Pro Forma Combined Statement of Operations for the year
ended December 31, 1998
Notes to Unaudited Pro Forma Combined Financial Statements
HISTORICAL FINANCIAL STATEMENTS
SYMPOSIUM CORPORATION
Report of Independent Certified Public Accountants
Financial Statements
Consolidated Balance Sheet as of December 31, 1998
Consolidated Statement of Operations for the year ended
December 31, 1998
Consolidated Statement of Stockholders' Equity for the year
ended December 31, 1998
Consolidated Statement of Cash Flows for the year ended
December 31, 1998
Notes to Consolidated Financial Statements
HAMILTON TELECOMMUNICATIONS CORPORATION
Report of Independent Auditors
Financial Statements
Profit and Loss Account for the year ended June 30, 1998 and
1997 and the period ended December 31, 1998 and 1997
(Unaudited)
Balance Sheet as at June 30, 1998 and December 31, 1998
(Unaudited)
Cash Flow Statement for the year ended June 30, 1998 and 1997
and the period ended December 31, 1998 and 1997 (Unaudited)
Notes to the Financial Statements
21
<PAGE>
PART III
ITEM 1. INDEX TO EXHIBITS
The following exhibits are filed with this Registration Statement:
<TABLE>
<CAPTION>
Exhibit No. Exhibit Name
<S> <C>
3.1 Certificate of Incorporation of the Registrant, as amended.**
3.2 By-Laws of the Registrant.*
10.1 Share Purchase and Sale Agreement, by and between Symposium Telecom
Corporation and Hamilton Telecommunications Limited, dated
December 14, 1998 as amended.**
10.2 Option Agreement, by and between Symposium Telecom Corporation,
Robert Green, Marilyn Shein, Fabrice Thomas, Shropshire Five
Investment Limited and Automated Communications Limited, dated
December 14, 1998, as amended.*
10.3 1998 Stock Option Plan.*
10.4 Form of Indemnification Agreement.*
16.1 Letter from Weinberg & Company, P.A., dated February 16, 1999,
regarding change in certifying accountant.*
21.1 List of Subsidiaries of Registrant.*
27.1 Financial Data Schedule.*
</TABLE>
- --------------
* Incorporated by reference to exhibits to the Registrant's Registration
Statement on Form 10-SB filed on February 24, 1999.
** Incorporated by reference to exhibits to the Registrant's Amendment No. 1
to Registration Statement on Form 10-SB filed on June 1, 1999.
ITEM 2. DESCRIPTION OF EXHIBITS
See Item 1 above.
22
<PAGE>
SIGNATURES
In accordance with Section 12 of the Securities Exchange Act of
1934, the registrant caused this Amendment No. 3 to the registration
statement on Form 10-SB to be signed on its behalf by the undersigned,
thereunto duly authorized.
SYMPOSIUM CORPORATION
(Registrant)
Date: June 16, 1999 By: /s/ Ronald Altbach
-------------------------- --------------------------
Ronald Altbach
CHIEF OPERATING OFFICER
Pursuant to the requirements of the Securities Act of 1934, this report
has been signed below by the following persons on behalf of the registrant
and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
<S><C>
Signature Title Date
--------- ----- ----
Co-Chairman of the Board and Chief
* Executive Officer June 16, 1999
- --------------------------
Ruper Galliers-Pratt
Co-Chairman of the Board
Acting Chief Financial Officer and
/s/ Ronald Altbach Chief Operating Officer June 16, 1999
- --------------------------
Ronald Altbach
* Director June 16, 1999
- --------------------------
Richard Cohen
</TABLE>
* By /s/ Ronald Altbach
-----------------------
Ronald Altbach
as his Attorney-in-Fact
23
<PAGE>
SYMPOSIUM TELECOM CORPORATION
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
PRO FORMA COMBINED FINANCIAL STATEMENTS
<S> <C>
SYMPOSIUM TELECOM CORPORATION
Introduction to Unaudited Pro Forma Combined Financial Statements F-2
Unaudited Pro Forma Combined Balance Sheet F-3
Unaudited Pro Forma Combined Statement of Operations F-4
Notes to Unaudited Pro Forma Combined Financial Statements F-5 -- F-8
HISTORICAL FINANCIAL STATEMENTS
SYMPOSIUM TELECOM CORPORATION (REGISTRANT)
Report of Independent Certified Public Accountants F-9
Financial Statements
Consolidated Balance Sheet F-10
Consolidated Statement of Operations F-11
Consolidated Statement of Changes in Stockholders' Equity F-12
Consolidated Statement of Cash Flows F-13
Notes to Consolidated Financial Statements F-14 -- F-21
HAMILTON TELECOMMUNICATIONS LIMITED
Report of Independent Auditors F-22
Financial Statements
Profit and Loss Account F-23
Balance Sheet F-24
Statement of Cash Flows F-25
Notes to the Financial Statements F-26 -- F-33
</TABLE>
F-1
<PAGE>
Symposium Telecom Corporation
INTRODUCTION TO UNAUDITED PRO FORMA
COMBINED FINANCIAL STATEMENTS
BASIS OF PRESENTATION
Symposium Telecom Corporation (the "Company" or "Symposium"), a Delaware
corporation, was founded in May 1997 under the name Brack Industries Inc. In
July 1998, the Company amended its certificate of incorporation and changed
its name to Symposium Telecom Corporation. The Company is engaged principally
in telemarketing magazine and periodical subscription renewals to persons
whose subscriptions have recently expired. Symposium has contracted to
acquire all of the outstanding shares of Hamilton Telecommunications Limited
("Hamilton"), a company incorporated in the Republic of Ireland (the
"Acquisition"). Hamilton supplies telecommunications services to
international audiotext information providers located throughout Europe and
the Middle East. Currently, none of the shareholders of Hamilton are direct
or indirect shareholders of Symposium. Following the closing of the
Acquisition, Robert Green and Marilyn Shein will become shareholders of
Symposium. (See Note 1 - Acquisition.)
The following unaudited pro forma combined financial statements give effect
to the Acquisition. The Acquisition is anticipated to occur in April 1999 and
will be accounted for using the purchase method of accounting whereby the
assets and liabilities of Hamilton are recorded at fair market value.
Symposium has been identified as the accounting acquirer for financial
statement presentation purposes.
The unaudited pro forma combined balance sheet gives effect to the
Acquisition as if it had occurred on December 31, 1998. The unaudited pro
forma combined statement of operations gives effect to the Acquisition as if
it had occurred on January 1, 1998. The unaudited pro forma combined
statement of operations reflects the operating results of Symposium and
Hamilton for the calendar year ended December 31, 1998. Hamilton's operating
results for its fiscal year ended June 30, 1998 were adjusted by adding the
subsequent period, July 1, 1998 to December 31, 1998, and subtracting the
interim period, July 1, 1997 to December 31, 1997.
The pro forma financial statements include adjustments to reflect (i) the
effect of the Acquisition, (ii) the effect of contractual compensation of
Symposium's new corporate management, (iii) the reduction in compensation to
the management of Hamilton, (iv) amortization of goodwill over fifteen years,
(v) an adjustment to convert Hamilton's financial statements to U.S.
generally accepted accounting principles, and (vi) amounts payable to the
shareholders of Hamilton for the cash portion of the purchase price of the
Acquisition and related interest expense at a rate of 12% per annum.
The pro forma adjustments are based on estimates, available information and
certain assumptions and may be revised as additional information becomes
available. The pro forma financial data do not purport to represent what
Symposium's financial position or results of operations would actually have
been if such transactions, in fact, had occurred on those dates and are not
necessarily representative of Symposium's financial position or results of
operations for any future period. Since the companies were not under common
control, historical combined results may not be comparable to, or indicative
of, future performance. The unaudited pro forma combined financial statements
should be read in conjunction with the other financial statements and notes
thereto included elsewhere in this Registration Statement.
F-2
<PAGE>
Symposium Telecom Corporation
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
December 31, 1998
(amounts in thousands)
<TABLE>
<CAPTION>
Symposium Hamilton Pro
Telecom Telecommuni- forma Pro
Corporation cations adjust- forma
ASSETS (Registrant) Limited ment combined
------------ ------------ -------- --------
<S> <C> <C> <C> <C>
CURRENT ASSETS
Cash $ 292 $ 152 $ - $ 444
Accounts receivable, net 10 1,481 - 1,491
---- ----- ------- ------
Total current assets 302 1,633 - 1,935
PLANT AND EQUIPMENT, NET 22 77 - 99
GOODWILL - - 7,320 7,320
ORGANIZATION COSTS 26 - - 26
---- ----- ------- ------
$ 350 $1,710 $ 7,320 $ 9,380
==== ===== ====== ======
LIABILITIES AND
STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Amounts payable to Hamilton shareholders $ - $ - $ 5,750 $ 5,750
Accounts payable and accrued expenses 72 1,538 60 1,670
Due to stockholders 3 - - 3
---- ----- ------ ------
Total current liabilities 75 1,538 5,810 7,423
LONG-TERM DEBT
Capital lease obligation, net of current portion - 39 - 39
---- ----- ------ ------
75 1,577 5,810 7,462
---- ----- ------ ------
STOCKHOLDERS' EQUITY
Common stock 7 - 2 9
Additional paid-in capital 587 - 1,641 2,228
Retained earnings (accumulated deficit) (319) 133 (133) (319)
---- ----- ------ ------
275 133 1,510 1,918
---- ----- ------ ------
$ 350 $1,710 $ 7,320 $ 9,380
==== ===== ====== ======
</TABLE>
The accompanying notes are an integral part of this unaudited statement.
F-3
<PAGE>
Symposium Telecom Corporation
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
Year ended December 31, 1998
(amounts in thousands)
<TABLE>
<CAPTION>
Symposium Hamilton
Telecom Telecommuni- Total Pro forma Pro
Corporation cations combined adjust- forma
(Registrant) Limited historical ments combined
------------ ------------ ---------- ----------- --------
<S> <C> <C> <C> <C> <C>
Revenues $ 14 $8,340 $8,354 $ - $8,354
Cost of sales (Note 5) 21 5,178 5,199 - 5,199
---- ----- ----- ------ -----
Gross margin (7) 3,162 3,155 - 3,155
Operating expenses 312 3,070 3,382 (1,357) 2,025
Goodwill amortization - - - 488 488
---- ----- ----- ------ -----
Operating income (loss) (319) 92 (227) 869 642
Other income (expense)
Interest income - 12 12 - 12
Interest expense - (11) (11) (690) (701)
Other expense - - - (17) (17)
---- ----- ----- ------ -----
Income (loss) before taxes (319) 93 (226) 162 (64)
Provision for income taxes - 32 32 - 32
---- ----- ----- ------ -----
NET INCOME (LOSS) $(319) $ 61 $ (258) $ 162 (96)
==== ===== ==== ====== =====
Net loss per share
Basic and diluted $(.18) $ (.01)
==== =====
Shares used in computing
net loss per share
Basic and diluted 1,729,428 9,013,321
========= =========
</TABLE>
The accompanying notes are an integral part of this unaudited statement.
F-4
<PAGE>
Symposium Telecom Corporation
NOTES TO UNAUDITED PRO FORMA
COMBINED FINANCIAL STATEMENTS
NOTE 1 - ACQUISITION
The following table sets forth the consideration to be paid (the "Purchase
Consideration") in cash and shares of common stock of Symposium to
Hamilton, and the allocation of the consideration to net assets acquired
and resulting goodwill at December 31, 1998. The number of shares to be
issued to Hamilton is based upon the assumed market value of $1.00 per
share.
<TABLE>
<CAPTION>
Net
Shares of Value Total assets
common of considera- acquired,
Cash stock shares tion as adjusted Goodwill
---- --------- ------ ---------- ------------- --------
---------------------------------(in 000's)------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Hamilton Telecommunications
Limited $5,750 1,643 $1,643 $7,393 $ 73 $7,320
===== ===== ===== ===== === =====
</TABLE>
The total Purchase Consideration does not reflect any contingent
consideration, which cannot exceed $6,000,000, as defined in the Purchase
Agreement.
Completion of the acquisition is conditioned upon Symposium's common stock
being quoted on the OTC Bulletin Board Service and Symposium raising
sufficient funds to satisfy the initial cash consideration. The Sellers may
terminate the agreement if the conditions to closing are not satisfied by
June 14, 1999. This Agreement has been extended to August 14, 1999. There
is no certainty that Symposium will be able to complete the Acquisition.
Based on management's preliminary analysis, it is anticipated that the
historical carrying value of Hamilton's assets and liabilities will
approximate fair value. The amount allocated to goodwill is approximately
$7,320,000 at December 31, 1998.
F-5
<PAGE>
Symposium Telecom Corporation
NOTES TO UNAUDITED PRO FORMA
COMBINED FINANCIAL STATEMENTS (CONTINUED)
NOTE 2 - UNAUDITED PRO FORMA COMBINED BALANCE SHEET ADJUSTMENTS
The following table summarizes unaudited pro forma combined balance sheet
adjustments (amounts in thousands):
<TABLE>
<CAPTION>
Total
adjust-
ASSETS (a) (b) ments
------ ---- -------
<S> <C> <C> <C>
GOODWILL $7,320 $ - $7,320
----- --- -----
$7,320 $ - $7,320
===== === =====
LIABILITIES AND
STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Amounts payable to Hamilton shareholders $ 5,750 $ - $ 5,750
Accounts payable and accrued expenses - 60 60
------- --- ------
Total current liabilities 5,750 60 5,810
STOCKHOLDERS' EQUITY
Common stock 2 - 2
Additional paid-in capital 1,641 - 1,641
Retained earnings (deficit) (73) (60) (133)
------- --- ------
1,570 (60) 1,510
------- --- ------
$ 7,320 $ - $ 7,320
====== ===== ======
</TABLE>
F-6
<PAGE>
Symposium Telecom Corporation
NOTES TO UNAUDITED PRO FORMA
COMBINED FINANCIAL STATEMENTS (CONTINUED)
NOTE 2 - UNAUDITED PRO FORMA COMBINED BALANCE SHEET ADJUSTMENTS (CONTINUED)
(a) Records the consideration paid by Symposium, including
cash consideration of $5.75 million and common stock with an
assumed fair market value of $1.64 million, and the resulting
goodwill. The pro forma assumes that the cash portion of the
purchase price is funded by issuance of debt.
(b) Records an adjustment to accrue a migration tax payable to present
Hamilton's financial statements in accordance with U.S. generally
accepted accounting principles.
NOTE 3 - UNAUDITED PRO FORMA COMBINED STATEMENTS
OF OPERATIONS ADJUSTMENTS
The following table summarizes unaudited pro forma combined statement of
operations adjustments (amounts in thousands):
<TABLE>
<CAPTION>
Year Ended December 31, 1998
----------------------------------------------------------------
Pro
forma
adjust-
(a) (b) (c) (d) (e) ments
-------- --- ------- ------- ----- ---------
<S> <C> <C> <C> <C> <C> <C>
Operating expenses $ - $ - $ 550 $(1,907) $ - $(1,357)
-
Goodwill amortization - 488 - - 488
---- ---- ---- ------ --- -------
Operating income - (488) (550) 1,907 - 869
Other income and (expenses)
Interest expense (690) - - - - (690)
Other expense - - - - (17) (17)
---- -------- ---- ------ --- ------
Income before taxes (690) (488) (550) 1,907 (17) 162
Provision for taxes - - - - - -
---- ---- ---- ------ --- --------
NET INCOME (LOSS) $(690) $(488) $(550) $ 1,907 $(17) $ 162
==== ==== ==== ====== === ======
</TABLE>
(a) The Company has commenced a private placement for the financing
of the $5.75 million of cash required under the Hamilton purchase
agreement on the following terms: a one year note payable bearing
interest at 12% per annum. Note holders will be issued warrants to
purchase 300,000 shares of common stock at $3.50 per share expiring
twelve months after issuance. The Company records interest expense
for twelve months at a rate of 12% per annum for acquisition
indebtedness of $5.75 million. A difference of 1% in the actual
interest rate from the assumed rate would change the net income by
$57,750.
(b) Records amortization of goodwill based on a fifteen-year life.
This estimated life is based on the experience and background of
the Company's principals, and the overall maturity of the audiotext
industry.
F-7
<PAGE>
Symposium Telecom Corporation
NOTES TO UNAUDITED PRO FORMA
COMBINED FINANCIAL STATEMENTS (CONTINUED)
NOTE 3 - UNAUDITED PRO FORMA COMBINED STATEMENTS
OF OPERATIONS ADJUSTMENTS (CONTINUED)
(c) Records an increase in compensation to Symposium management under terms
approved by the Company's Board of Directors.
(d) Reflects the net reduction in compensation to the owners and officers
of Hamilton, based on terms agreed to with Symposium. The adjustment
is calculated as follows:
<TABLE>
<CAPTION>
<S> <C>
Actual Compensation $2,507,000
Contracted Compensation 600,000
----------
$1,907,000
----------
----------
</TABLE>
The adjustment as set forth above does not include an adjustment for
bonuses payable to the owners and officers of Hamilton since
Hamilton's pro forma net income did not exceed certain threshold
amounts.
The Contracted Compensation is pursuant to consulting agreements which
will be executed simultaneously with the closing of the Acquisition.
(e) Records an adjustment to accrue a migration tax payable in order to
present Hamilton's financial statements in accordance with U.S.
generally accepted accounting principles. The amount is derived by
adding the adjustment for the six months ended December 31, 1998 to
the cumulative adjustment at June 30, 1998, and subtracting the
adjustment for the six months ended December 31, 1997.
NOTE 4 - PRO FORMA NET LOSS PER SHARE
Basic and diluted pro forma net loss per share is computed by dividing
net loss by the 9,013,321 common shares outstanding upon the completion
of the Acquisition. Outstanding options and warrants have not been included
in the computation as the effect would be antidilutive.
NOTE 5 - NON-RECURRING INCOME
Included in cost of sales of Hamilton is a non-recurring reduction of costs
in the amount approximately $675,000.
NOTE 6 - INCOME TAXES - HAMILTON
No current tax provision has been recorded since Hamilton is not
subject to income taxes in the United States until such time as
income is repatriated. The Company's management has no intent to
repatriate foreign earnings.
F-8
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors and Stockholders
SYMPOSIUM TELECOM CORPORATION AND SUBSIDIARY
We have audited the accompanying consolidated balance sheet of Symposium
Telecom Corporation and Subsidiary (the "Company"), as of December 31, 1998
and the related consolidated statements of operations and deficit,
stockholders' equity and cash flows for the year 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 audit.
We conducted our audit 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 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 Symposium Telecom
Corporation and Subsidiary at December 31, 1998, and the results of their
operations and their cash flows for the year then ended, in conformity with
generally accepted accounting principles.
GRANT THORNTON LLP
New York, New York
February 11, 1999
F-9
<PAGE>
Symposium Telecom Corporation and Subsidiary
CONSOLIDATED BALANCE SHEET
December 31, 1998
ASSETS
<TABLE>
<CAPTION>
<S> <C>
CURRENT ASSETS
Cash $ 292,194
Accounts receivable (net of $2,994 allowance
for doubtful accounts) 10,197
---------
Total current assets 302,391
EQUIPMENT, NET 22,304
ORGANIZATION COSTS 25,110
---------
$ 349,805
---------
---------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 71,625
Due to stockholders 3,162
---------
Total current liabilities 74,787
STOCKHOLDERS' EQUITY
Preferred stock - par value, $.001 per share;
authorized, 10,000,000 shares; -0- shares
issued and outstanding -
Common stock - par value, $.001 per share;
authorized, 25,000,000 shares; 7,370,464
shares issued and outstanding 7,370
Additional paid-in capital 587,152
Deficit (319,504)
---------
275,018
---------
$ 349,805
---------
---------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THIS STATEMENT.
F-10
<PAGE>
Symposium Telecom Corporation and Subsidiary
CONSOLIDATED STATEMENT OF OPERATIONS
Year ended December 31, 1998
<TABLE>
<CAPTION>
<S> <C>
Revenues $ 13,816
Cost of sales 20,586
----------
Gross loss (6,770)
----------
Operating expenses
Consulting expenses 145,838
Compensation 83,000
Transfer agency fee 11,543
Auto expense 543
Travel expense 7,645
Legal expense 42,014
Accounting expense 3,807
Telephone expense 3,001
Licenses and taxes 225
Depreciation expense 124
Office expense 12,799
Miscellaneous 2,195
----------
312,734
----------
NET LOSS $ (319,504)
----------
----------
Net loss per share of common stock
Basic and diluted $(.18)
----------
----------
Weighted average common stock outstanding
Basic and diluted 1,729,428
----------
----------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THIS STATEMENT.
F-11
<PAGE>
Symposium Telecom Corporation and Subsidiary
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
Year ended December 31, 1998
<TABLE>
<CAPTION>
Common Stock
------------------
Number Additional Total
of paid-in Accumulated stockholders'
shares Amount capital deficit equity
------ ------ ---------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1998 - $ - $ - $ - $ -
Shares issued for services 9,200 9 175 184
Shares issued for cash 7,361,264 7,361 430,977 - 438,338
Stock options and warrants issued for services 73,000 73,000
Contributed services - officers 83,000 83,000
Net loss (319,504) (319,504)
--------- ------ -------- --------- ---------
Balance at December 31, 1998 7,370,464 $7,370 $587,152 $(319,504) $ 275,018
--------- ------ -------- --------- ---------
--------- ------ -------- --------- ---------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THIS STATEMENT.
F-12
<PAGE>
Symposium Telecom Corporation and Subsidiary
CONSOLIDATED STATEMENT OF CASH FLOWS
Year ended December 31, 1998
<TABLE>
<CAPTION>
<S> <C>
Cash flows from operating activities
Net loss $(319,504)
Adjustments to reconcile net loss to the net cash
used in operating activities
Depreciation 124
Stock options and warrant issued for services 73,000
Contributed services - officers 83,000
Net change in asset and liabilities
Accounts and other receivables (10,197)
Accounts payable and accrued expenses 71,625
Due to stockholders 3,162
---------
Net cash used in operating activities (98,790)
---------
Cash flows from investing activities
Purchase of equipment (22,428)
Organization costs (24,926)
---------
Net cash used in investing activities (47,354)
---------
Cash flows from financing activities
Issuance of common stock 438,338
---------
NET INCREASE IN CASH 292,194
Cash at beginning of year -
---------
Cash at end of year $ 292,194
---------
---------
Supplemental disclosure of cash flow information:
Noncash investing activities
9,200 shares of common stock issued for
organization costs $ 184
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THIS STATEMENT.
F-13
<PAGE>
Symposium Telecom Corporation and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998
NOTE A - DESCRIPTION OF BUSINESS AND SIGNIFICANT
ACCOUNTING POLICIES
FORMATION OF THE COMPANY
Symposium Telecom Corporation (the "Company") was incorporated in Delaware
on May 9, 1997 under the name of Brack Industries Inc. No activity in the
Company occurred until 1998, when initial capital contributions were made.
As a result, no financial statements have been presented for the period
prior to January 1, 1998. In June 1998, the Company amended its certificate
of incorporation and changed its name to Symposium Telecom Corporation. The
Company, through its wholly-owned subsidiary, Publisher Advantage
Corporation ("PAC"), is engaged principally in telemarketing in the United
States for magazine and periodical subscription renewals to persons whose
subscriptions have recently expired. PAC commenced operations in the
quarter ended December 31, 1998.
ACQUISITIONS
In December 1998, the Company contracted to acquire all of the outstanding
shares of Hamilton Telecommunications Limited ("Hamilton"), a corporation
organized under the laws of the Republic of Ireland that supplies
telecommunications services to international audiotext information
providers located throughout Europe and in the Middle East. The Acquisition
will be accounted for using the purchase method of accounting.
The purchase price for Hamilton is $5.75 million plus 1,642,857 shares of
the Common Stock plus contingent consideration equal to the lesser of: (1)
five times the amount, if any, by which the relevant profits (as defined)
of Hamilton for its fiscal year ending June 30, 1999 exceed $2.25 million
(the relevant profits of Hamilton for the fiscal year ended June 30, 1998),
and (2) $6,000,000. The contingent consideration is payable 50% in cash and
50% in shares of Common Stock valued at $3.50 per share (accordingly, a
maximum of 857,143 additional shares of Common Stock may be issued).
The Acquisition of Hamilton is contingent upon the Company's ability to
obtain financing of at least $5.75 million and its stock being quoted on
the OTC Bulletin Board Service. There is no certainty that the Company will
be able to complete the Acquisition. The stockholders of Hamilton can
cancel the agreement if the conditions to closing are not satisfied by
June 14, 1999.
F-14
<PAGE>
Symposium Telecom Corporation and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 1998
NOTE A (CONTINUED)
In addition, in December 1998, the Company purchased an option (the "Option
Agreement") to acquire all of the outstanding capital stock of Automated
Communications Limited ("ACL"), a Bahamas corporation. ACL, which is owned
beneficially by the principal shareholders of Hamilton, is an international
audiotext service operator that had not generated revenues as of
December 31, 1998. The Company has agreed to pay an option fee in shares of
common stock having a market value of $2 million if certain conditions are
satisfied, including the completion of the acquisition of Hamilton and the
certification by ACL's auditors that within nine months of the date of the
agreement ACL had earned in any one month in excess of $100,000 over its
expenditures. The purchase price for the ACL shares is an amount equal to
the relevant profits of ACL for the 12-month period ending 18 months
following the date the common stock of Symposium becomes quoted on the OTC
Bulletin Board Service, multiplied by six, less the option fee. The option
price is payable 50% in cash and 50% in shares of common stock (based on
the market value of the common stock). The option is exercisable during a
six-month period following the period during which the relevant profits are
calculated. Under the terms of the agreement, certain executives of the
Company would be entitled to receive a portion of the proceeds as
compensation for services. Under the Option Agreement, Symposium has agreed
that without the approval of the shareholders of ACL it will not issue any
preferred stock (other than in connection with any financing to complete
the Hamilton acquisition) until the earlier to occur of payment of the
option price or the date the common stock of Symposium is listed on the
Nasdaq stock market.
There is no certainty that the Company will be able to complete the
Acquisition.
A summary of significant accounting policies applied consistently in the
preparation of the accompanying financial statements follows:
BASIS OF PRESENTATION
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiary, Publishers Advantage Corporation ("PAC").
All intercompany accounts and transactions have been eliminated in the
accompanying consolidated financial statements.
F-15
<PAGE>
Symposium Telecom Corporation and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 1998
NOTE A (CONTINUED)
REVENUE RECOGNITION
PAC recognizes revenue as commissions are earned when subscription renewals
are received. PAC estimates a reserve for renewals that are ultimately not
collectible.
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 and
disclosure of contingent assets and liabilities at the date of the
financial statements, as well as the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from
those estimates.
EQUIPMENT
Equipment is recorded at cost, less accumulated depreciation. Depreciation
expense is computed using straight-line and accelerated methods over the
equipment's useful life.
NET LOSS PER SHARE
Net loss per common share is based on the weighted-average number of common
shares outstanding during the periods.
Basic earnings per share exclude dilution and are computed by dividing
income (loss) available to common shareholders by the weighted-average
common shares outstanding for the period. Diluted earnings per share
reflect the weighted-average common shares outstanding plus the potential
dilutive effect of securities or contracts which are convertible to common
shares, such as options, warrants, and convertible preferred stock.
Options and warrants to purchase 580,000 shares and 20,000 shares,
respectively, of common stock were outstanding at December 31, 1998, but
were not included in the computation of diluted earnings per share because
to do so would have been antidilutive.
F-16
<PAGE>
Symposium Telecom Corporation and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 1998
NOTE A (CONTINUED)
IMPAIRMENT OF LONG-LIVED ASSETS
The Company reviews long-lived assets and certain identifiable intangibles
held and used for possible impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. The Company has determined that no provision is necessary for
the impairment of long-lived assets at December 31, 1998.
NOTE B - EQUIPMENT
Equipment at December 31, 1998 is summarized as follows:
<TABLE>
<CAPTION>
Useful
life
--------
<S> <C> <C>
Equipment $22,428 5 years
Less: accumulated depreciation (124)
--------
$22,304
--------
--------
</TABLE>
Depreciation expense amounted to $124 for the year ended December 31, 1998.
NOTE C - CONCENTRATIONS
The Company maintains its cash balances at two financial institutions.
Deposits are insured by the Federal Deposit Insurance Corporation on
aggregate balances up to $100,000 at each financial institution. Uninsured
balances aggregate to approximately $200,000 at December 31, 1998. The
Company has not experienced any losses in such accounts and believes it is
not exposed to any significant credit risk.
The success of the PAC's telemarketing business is subject to a number of
risks and uncertainties, including the ability to obtain lists of expiring
subscriptions directly from publishers. In 1998, PAC received all of its
lists of expiring subscriptions from one publisher.
F-17
<PAGE>
Symposium Telecom Corporation and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 1998
NOTE D - STOCKHOLDERS' EQUITY
The Company is authorized to issue 25,000,000 shares of common stock, $.001
par value and 10,000,000 shares of preferred stock, $.001 par value. From
its date of incorporation to December 31, 1998, and after giving effect to
a 1-for-2 reverse split in October 1998, the Company has issued 7,361,264
shares for cash and 9,200 shares for organization costs, as follows:
<TABLE>
<CAPTION>
Number
Price per of Net
share shares proceeds
--------- ------- ----------
<S> <C> <C>
$ .01 6,658,800 $ 66,589
.02 346,664 6,933
1.00 365,000 365,000
---------- ---------
7,370,464 $438,522
---------- ---------
---------- ---------
</TABLE>
In December 1998, the Company granted warrants to two consultants to
purchase an aggregate of 20,000 shares of the Company's common stock at an
exercise price of $1.00 per share. The warrants expire December 3, 2001.
The Company recognized $4,000 of consulting expense related to these
warrants.
NOTE E - STOCK OPTIONS
In December 1998, the Board of Directors approved the adoption of a stock
option plan (the "Plan"). The Plan provides for the grant of options to
purchase up to 1,000,000 shares of the Company's common stock. These
options may be granted to selected eligible directors, officers, employees
and consultants of the Company. Options granted under the Plan may either
be "incentive stock options" within the meaning of Section 422 of the
Internal Revenue Code of 1986, as amended (the "Code"), or options which do
not qualify as "incentive stock options." The exercise price of an
incentive stock option may not be less than the fair market value of a
share of common stock on the date of grant. There is no limitation on the
exercise price of options that are not incentive stock options. No
participant may receive options representing more than 50% of the aggregate
number of shares of common stock that may be issued pursuant to all options
under the Plan.
F-18
<PAGE>
Symposium Telecom Corporation and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 1998
NOTE E (CONTINUED)
Statement of Financial Accounting Standards No. 123 ("SFAS No. 123"),
"Accounting for Stock-Based Compensation establishes financial accounting
and reporting standards for stock-based employee compensation plans. The
financial accounting standards of SFAS No. 123 permit companies to either
continue accounting for stock-based compensation under previous rules or
adopt SFAS No. 123 and reflect the fair value of stock options and other
forms of stock-based compensation in the results of operations and
additional expense. The disclosure requirements of SFAS No. 123 require
companies which elect not to record the fair value in the statement of
operations to provide pro forma disclosures of net income and earnings per
share in the notes to the financial statements as if the fair value of
stock-based compensation had been recorded.
The Company follows Accounting Principles Board Opinion No. 25 and its
related interpretations in accounting for its stock-based compensation
plans. Accordingly, no compensation cost has been recognized in the
statement of operations for employee stock options, however, the Company
did recognize approximately $69,000 of consulting expense for options which
were granted in 1998 to directors and consultants.
The following table summarizes the stock option activity for the year ended
December 31, 1998:
<TABLE>
<CAPTION>
Weighted
average
exercise
price Shares
-------- -------
<S> <C> <C>
Balance at January 1, 1998 $ - -
Granted $.98 580,000
-------
Balance at December 31, 1998 580,000
-------
-------
</TABLE>
As of December 31, 1998, no options outstanding were exercisable. The
exercise price for all stock options awarded was determined by the Board of
Directors of the Company.
F-19
<PAGE>
Symposium Telecom Corporation and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 1998
NOTE E (CONTINUED)
The following table summarizes option data as of December 31, 1998:
<TABLE>
<CAPTION>
Options outstanding
----------------------------------------------
Weighted-
average Weighted-
remaining average
Range of Number contractual exercise Number
exercise price outstanding life price exercisable
-------------- ----------- ----------- --------- -----------
<S> <C> <C> <C> <C>
$.01 70,000 4 years $ .01 -
$1.00 - $2.50 510,000 4 years $ 1.12 -
--------- ------ ---------
580,000 $ .98 -
--------- ------ ---------
--------- ------ ---------
</TABLE>
The Company utilized the Black-Scholes option-pricing model to quantify the
expense for options and warrants granted to nonemployees and the pro forma
effects on net loss and net loss per share of the fair value of the options
granted to employees during 1998. The following assumptions were made in
estimating fair value.
<TABLE>
<S> <C>
Risk-free interest rate 6%
Expected option life 4 years
Expected volatility 1%
</TABLE>
Had compensation cost been determined under SFAS No. 123 for the year ended
December 31, 1998, net loss and net loss per share would have been
increased as follows:
<TABLE>
<S> <C>
Net loss
As reported $(319,504)
Pro forma for stock options and warrants (351,504)
Net loss per share
As reported $(.18)
Pro forma for stock options and warrants (.20)
</TABLE>
F-20
<PAGE>
Symposium Telecom Corporation and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 1998
NOTE F - COMMITMENTS AND CONTINGENCIES
CONSULTING AGREEMENTS - RELATED PARTIES
The Company has engaged the services of several consultants, who are
directors or shareholders, to promote public relations and to identify
business development leads and potential acquisition targets for the
Company. The Company has commitments for consulting costs of approximately
$100,000 over the next twelve months related to these agreements. Under one
of these agreements, the Company issued options to purchase 40,000 shares
of its common stock.
SERVICE AGREEMENT
PAC has engaged Publishers National Associated Service ("PNAS") to perform,
on a "turnkey" basis, telemarketing services for PAC. PNAS performs these
services at a telemarketing call center in Blasdell, New York. Publishers
Advantage's operations occupy space in the call center. PNAS provides, at
its expense, the facility, all telephones, telephone lines, telemarketers,
bookkeeping and other administrative personnel and facilities management.
PAC supplies the other computer software and equipment used by the
telemarketers. PAC compensates PNAS by paying the agreed-upon hourly fee
for each hour worked by each telemarketer.
PAC depends on PNAS to perform PAC's telemarketing operations. PAC's
engagement of PNAS will terminate in December 1999 and there is no
assurance that PNAS will renew the arrangement. Although there are many
other companies that provide similar services, there is no assurance that
PAC would be able to engage an acceptable replacement by the time the
arrangement with PNAS terminates. If PAC's engagement of PNAS is
terminated, PAC will not generate any revenues during the period in which
it has no agreement with a telemarketing service company to perform these
services for PAC and has no capability of performing these services with
its own personnel.
NOTE G - INCOME TAXES
Income taxes payable are provided for on taxable income at the statutory
rates applicable to such income. No current tax provision has been recorded
as a result of losses incurred by the Company.
No deferred taxes have been provided since the amounts of deferred tax
assets and liabilities are immaterial to the accompanying financial
statements.
F-21
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and the Shareholders of Hamilton Telecommunications
Limited.
We have audited the accompanying balance sheet of Hamilton Telecommunications
Limited ("the Company") as of June 30, 1998 and the related statements of
profit and loss account and cash flows for the years ended June 30, 1998 and
1997 (together, "the financial statements") which, as described in the
financial statements, have been prepared on the basis of accounting
principles generally accepted in the United Kingdom. These financial
statements are the responsibility of the Directors of the Company. 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 in the United Kingdom, which are substantially the same as auditing
standards generally accepted in the United States. 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 statements 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 Hamilton Telecommunications
Limited as of June 30, 1998, and the results of its operations and its cash
flows for the years ended June 30, 1998 and 1997, in conformity with
accounting principles generally accepted in the United Kingdom.
United Kingdom accounting principles vary in certain material respects from
accounting principles generally accepted in the United States. The
application of the latter would have affected the determination of
shareholders' equity and financial position as of June 30, 1998, and the
determination of net profit for the years ended June 30, 1998, and 1997 to
the extent summarized in Note 14 to the financial statements.
SINCLAIR CROYDON
Chartered Accountants and Registered Auditors
Squires House
81 - 87 High Street,
Billericay,
Essex, CM12 9AS
27th October 1998
F-22
<PAGE>
HAMILTON TELECOMMUNICATIONS LIMITED
PROFIT AND LOSS ACCOUNT
<TABLE>
<CAPTION>
SIX MONTHS ENDED
FOR THE YEAR ENDED JUNE 30, DECEMBER 31,
----------------------------------------------------- ------------------------------------
NOTES 1998 1997 1998 1997
------ ---------------------- ----------------------- ------------------- ----------
(unaudited)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
TURNOVER 1 $9,828,941 $5,702,179 $3,756,257 $5,245,404
Cost of sales 6,361,614 4,165,996 2,454,957 3,639,110
---------- ---------- ---------- ----------
GROSS PROFIT 3,467,327 1,536,183 1,301,300 1,606,294
Administrative expenses 3,291,288 1,471,536 1,354,654 1,575,675
---------- ---------- ---------- ----------
OPERATING PROFIT 2 176,039 64,647 (53,354) 30,619
Interest receivable 3 $10,678 $4,846 $2,582 1,340
Interest payable 4 6,466 4,212 - 4,846 4,498 (1,916) 1,340
------- ---------- ------- ---------- ------ ---------- ----------
PROFIT (LOSS) ON ORDINARY
ACTIVITIES BEFORE TAXATION 180,251 69,493 (55,270) 31,959
Tax on profit on ordinary
activities 5 39,322 22,117 7,187
---------- ---------- ---------- ----------
PROFIT (LOSS) ON ORDINARY
ACTIVITIES AFTER TAXATION 140,929 47,376 (55,270) 24,772
RETAINED PROFIT BROUGHT
FORWARD 47,376 188,305 47,376
---------- ---------- ---------- ----------
RETAINED PROFIT CARRIED
FORWARD $ 188,305 $ 47,376 $ 133,035 $ 72,148
========== ========== ========== ==========
</TABLE>
The company has no recognized gains or losses other than the profit or loss for
the above financial years.
The accompanying accounting policies and notes form an integral part of this
financial statement.
F-23
<PAGE>
HAMILTON TELECOMMUNICATIONS LIMITED
BALANCE SHEET
<TABLE>
<CAPTION> December 31,
June 30, 1998
NOTES 1998 (unaudited)
------- ---- ------------
<S> <C> <C> <C> <C> <C>
FIXED ASSETS
Tangible assets 6 $ 91,541 $ 76,865
CURRENT ASSETS
Debtors, net of reserve of $196,000 at
December 31, 1998 7 $1,271,211 $1,480,779
Cash at bank and in hand 145,810 151,850
---------- ----------
1,417,021 1,632,629
CREDITORS - amounts falling due
within one year 8 1,277,693 1,537,768
---------- ----------
NET CURRENT ASSETS 139,328 94,861
-------- --------
230,869 171,726
CREDITORS - amounts due after one year 9 42,562 38,689
-------- --------
$188,307 $133,037
-------- --------
-------- --------
CAPITAL AND RESERVES
Share Capital 11 $ 2 $ 2
Profit and Loss Account 188,305 133,035
-------- --------
$188,307 $133,037
-------- --------
-------- --------
</TABLE>
The accompanying accounting policies and notes form an integral part of this
financial statement.
F-24
<PAGE>
HAMILTON TELECOMMUNICATIONS LIMITED
CASH FLOW STATEMENT
<TABLE>
<CAPTION>
SIX MONTHS ENDED
FOR THE YEAR ENDED JUNE 30, DECEMBER 31,
---------------------------- 1998 1997
NOTES 1998 1997 ---------------- ----------
------ -------- -------- (unaudited)
------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
NET CASH INFLOW FROM OPERATING
ACTIVITIES
Operating profit (loss) $176,039 $64,647 $ (53,354) $ 30,619
Depreciation 18,712 7,156 14,676 5,216
Increase in debtor reserve for bad debts - - 196,000 -
Decrease in debtors 1,397,479 (2,668,690) (405,568) (2,585,175)
Decrease in creditors 1,412,662) 2,648,247 257,846 3,228,306
--------- ---------- -------- ----------
179,568 51,360 9,600 678,966
RETURNS ON INVESTMENT AND
SERVICING OF FINANCE
Interest received $10,678 $4,846 $2,582 1,340
Interest paid (6,466) (4,498)
------- ------ ------ ----------
Net cash inflow from returns on
investments and servicing of finance 4,212 4,846 (1,916) 1,340
TAXATION
Corporation tax paid (25,274) (22,117)
INVESTING ACTIVITIES
Payments to acquire tangible fixed
assets (88,781) (28,629) (66,311)
--------- --------- -------- ----------
NET CASH INFLOW BEFORE FINANCING 69,725 27,577 7,684 591,878
FINANCING ACTIVITIES
Capital element of Finance leases 48,508 (1,644) 49,515
--------- --------- -------- ---------
INCREASE IN CASH AND CASH
EQUIVALENTS $ 118,233 $ 27,577 $ 6,040 $ 641,393
========= ========= ======== =========
RECONCILIATION OF CHANGE IN CASH
AND CASH EQUIVALENTS
Cash at bank and in hand at the
beginning of the year $ 27,577 - $145,810 $ 27,577
Cash at bank and in hand at the end of
the year 145,810 27,577 151,850 668,970
--------- --------- -------- ---------
$ 118,233 $ 27,577 $ 6,040 $ 641,393
========= ========= ======== =========
</TABLE>
The accompanying accounting policies and notes form an integral part of this
financial statement.
F-25
<PAGE>
HAMILTON TELECOMMUNICATIONS LIMITED
NOTES TO THE FINANCIAL STATEMENTS
AS AT JUNE 30, 1998
(Information relating to December 31, 1998 and 1997 is Unaudited)
1. ACCOUNTING POLICIES
(a) CURRENCY
All figures are stated in U.S. dollars, which is the functional
currency of the Company.
(b) ACCOUNTING CONVENTIONS
The financial statements have been prepared under the historical cost
convention.
(c) ACCOUNTING STANDARDS
The financial statements have been prepared in accordance with
applicable accounting standards in the United Kingdom.
(d) TURNOVER AND DEBTORS
Turnover comprises payments received and due for services provided at
their estimated recoverable amounts. This is recorded as 90% of the
volume of measured telephone call traffic carried over brokered
telephone lines. The 90% payment makes allowance for a measurement
variance between the volume of call traffic as measured by the
telephone company in the country of origin of the call, and the call
carrier. The call carrier pays Hamilton Telecommunications Limited
before they receive final settlement from the country of origin. The
10% retention is expected to adequately cover any measurement
variances. The residual amounts will be accounted for upon receipt.
(e) FOREIGN EXCHANGE DIFFERENCES
Assets and liabilities in foreign currencies are translated into U.S.
dollars at rates of exchange ruling at the balance sheet date.
Transactions in foreign currencies are translated into U.S. dollars at
the average exchange rate for the year. Exchange differences are taken
into account in arriving at the operating profit.
(f) DEPRECIATION
Depreciation is provided on all tangible fixed assets at rates
calculated to write off the cost of the assets to their anticipated
residual values over their expected useful lives, as follows:
<TABLE>
Rate Method
<S> <C> <C>
Plant and equipment 25% straight line
Motor vehicles 25% straight line
</TABLE>
F-26
<PAGE>
HAMILTON TELECOMMUNICATIONS LIMITED
NOTES TO THE FINANCIAL STATEMENTS
AS AT JUNE 30, 1998
(Information relating to December 31, 1998 and 1997 is Unaudited)
1. ACCOUNTING POLICIES (CONTINUED)
(g) TAXATION
The accounts include a provision for U.K. corporation tax on the
profits of the business up until the date of the company's migration
from the U.K. This liability is yet to be agreed with the U.K. tax
authorities.
2. OPERATING PROFIT
Operating profit is stated after charging:
<TABLE>
<CAPTION>
Six months ended
Year ended June 30, December 31,
---------------------------- ----------------------------
1998 1997 1998 1997
---- ---- ---- ----
(unaudited)
<S> <C> <C> <C> <C>
Auditors' remuneration $20,000 $18,858 $10,000 $10,000
Depreciation 18,712 7,156 14,676 5,216
Equipment rental 2,904 23,296 - -
Foreign exchange difference 9,002 18,502 3,210 -
</TABLE>
3. INTEREST RECEIVABLE AND SIMILAR INCOME
<TABLE>
<CAPTION>
Six months ended
Year ended June 30, December 31,
---------------------------- ----------------------------
1998 1997 1998 1997
---- ---- ---- ----
(unaudited)
<S> <C> <C> <C> <C>
Bank interest $10,678 $4,846 $2,582 $1,340
====== ===== ====== ======
</TABLE>
4. INTEREST PAYABLE
<TABLE>
<CAPTION>
Six months ended
Year ended June 30, December 31,
---------------------------- ----------------------------
1998 1997 1998 1997
---- ---- ---- ----
(unaudited)
<S> <C> <C> <C> <C>
On hire purchase contact $5,830 - $4,498 -
On bank current accounts 636 - - -
------ ------ ------ ------
$6,466 - $4,498 -
------ ------ ------ ------
------ ------ ------ ------
</TABLE>
F-27
<PAGE>
HAMILTON TELECOMMUNICATIONS LIMITED
NOTES TO THE FINANCIAL STATEMENTS
AS AT JUNE 30, 1998
(Information relating to December 31, 1998 and 1997 is Unaudited)
5. TAXATION
The tax charge on the profit on ordinary activities for the year was as
follows:
<TABLE>
<CAPTION>
Year ended Six months ended
June 30, December 31,
1998 1997 1998 1997
---- ---- ---- ------
(unaudited)
<S> <C> <C> <C> <C>
U.K. corporation tax @ 21% $39,322 $22,117 - $7,187
======= ======= ==== ======
</TABLE>
6. TANGIBLE FIXED ASSETS
<TABLE>
<CAPTION>
June 30, 1998 and 1997
---------------------------------------------------
Motor Plant and
Vehicles Equipment Total
-------- --------- ---------
<S> <C> <C> <C>
Cost
At 1st July 1997 $28,629 $ 28,629
Additions in the year $72,591 16,190 88,781
------ ------ --------
At 30th June 1998 $72,591 $44,819 $117,410
====== ====== =======
Depreciation
At 1st July 1997 $ 7,157 $ 7,157
Charge for the year $ 7,508 11,204 18,712
------- ------ --------
At 30th June 1998 $ 7,508 $18,361 $ 25,869
======= ====== ========
Net Book Value
At 30th June 1997 $65,083 $26,458 $ 91,541
====== ====== ========
At 30th June 1998 $21,472 $ 21,472
====== ========
</TABLE>
<TABLE>
<CAPTION>
December 31, 1998
---------------------------------------------------
(unaudited)
Motor Plant and
Vehicles Equipment Total
-------- --------- ---------
<S> <C> <C> <C>
Cost
At 1st July 1998 $28,629 $ 28,629
Additions in the Period $72,591 16,190 88,781
------- ------- --------
At 31st December 1998 $72,591 $44,819 $117,410
------- ------- --------
------- ------- --------
</TABLE>
Depreciation expense for the six months ended December 31, 1998 and 1997
was $14,676 and $5,216, respectively.
Included in the amounts for fixed assets above are the following amounts
relating to assets which are subject to hire purchase contracts:
<TABLE>
<CAPTION>
Year ended
June 30, 1998
-------------
Motor
Vehicles
--------
<S> <C>
Net book value $65,083
Depreciation charge for the year $ 7,508
=======
</TABLE>
F-28
<PAGE>
HAMILTON TELECOMMUNICATIONS LIMITED
NOTES TO THE FINANCIAL STATEMENTS
AS AT JUNE 30, 1998
(Information relating to December 31, 1998 and 1997 is Unaudited)
7. DEBTORS
<TABLE>
<CAPTION>
June 30, December 31,
1998 1998
---- ------------
(unaudited)
<S> <C> <C>
Amounts falling due within one year
Trade debtors $1,271,211 $1,471,071
Prepaid expenses - 9,708
---------- ----------
$1,271,211 $1,480,779
---------- ----------
---------- ----------
</TABLE>
As described in the Note 1(d) the Company records 90% of the volume of
telephone call traffic as Turnover. The Company has recorded a bad debt
allowance of $196,000 at December 31, 1998. As of December 31, 1998 the
aging of Debtors increased in relation to a decrease in Turnover, as a
result of a temporary change in the advance rate by a major customer.
Since December 31, 1998 approximately $1,286,000 of Debtors amounts have
been collected.
8. CREDITORS
<TABLE>
<CAPTION>
June 30, December 31,
1998 1998
---- ------------
(unaudited)
<S> <C> <C>
Amounts falling due within one year
Trade creditors $1,220,115 $1,485,242
Hire purchase 5,946 8,175
Other creditors 186 186
Corporation Tax 36,165 36,165
Accruals 15,281 8,000
---------- ----------
$1,277,693 $1,537,768
---------- ----------
---------- ----------
</TABLE>
9. CREDITORS
<TABLE>
<CAPTION>
June 30, December 31,
1998 1998
---- ------------
(unaudited)
<S> <C> <C>
Amounts falling due after more than one year
Hire purchase $42,562 $38,689
------- -------
------- -------
</TABLE>
F-29
<PAGE>
HAMILTON TELECOMMUNICATIONS LIMITED
NOTES TO THE FINANCIAL STATEMENTS
AS AT JUNE 30, 1998
(Information relating to December 31, 1998 and 1997 is Unaudited)
10. HIRE PURCHASE OBLIGATIONS
The maturity of these amounts is as follows:
<TABLE>
<CAPTION>
June 30,
1998 December 31, 1998
-------- -----------------
(Unaudited)
<S> <C> <C>
Amounts payable
In the following year $ 5,946 $ 8,175
In the second year 10,246 38,689
In the third year 32,316 -
------- -------
Net obligation $48,508 $46,864
------- -------
------- -------
</TABLE>
11. SHARE CAPITAL
<TABLE>
<CAPTION>
June 30,
1998 December 31, 1998
--------- -----------------
(Unaudited)
<S> <C> <C>
Ordinary shares of IR L1 each
Authorized 100,000 100,000
------- -------
------- -------
Issued and fully paid 2 2
------- -------
------- -------
</TABLE>
12. EXCEPTIONAL ITEM
The commissions and revenues payable figure, which appears as a cost
within the profit and loss account, is shown net of a credit amount of
$674,611. This figure relates to the reversal of a provision for an amount
payable in respect of the year to 30th June 1997. During the course of the
year to 30th June 1998 it was proved that this amount was not due.
13. RELATED PARTY TRANSACTIONS
During the year ended June 30, 1998 and 1997 consultancy fees of
$2,801,905, and $114,434, respectively, were paid to Mr. R. Green and
Ms. M. Shein, and $921,693 and $1,372,679 for the six months ended
December 31, 1998 and 1997, respectively. These individuals were the key
management of the business and also the ultimate owners of the entire
issued share capital.
F-30
<PAGE>
HAMILTON TELECOMMUNICATIONS LIMITED
NOTES TO THE FINANCIAL STATEMENTS
AS AT JUNE 30, 1998
(Information relating to December 31, 1998 and 1997 is Unaudited)
14. RECONCILIATION TO US GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES (US GAAP)
The accompanying financial statements have been prepared in accordance
with accounting principles generally accepted in the United Kingdom ("UK
GAAP"), which differ in certain material respects from generally accepted
accounting principles in the United States ("US GAAP"). Such differences
involve methods for measuring the amounts shown in the financial
statements, as well as additional disclosures required by US GAAP.
The following is a summary of the material adjustment to profit on
ordinary activities and shareholders' equity which would have been
required in applying the significant differences between UK and US GAAP.
<TABLE>
<CAPTION>
Six months ended
June 30, December 31,
---------------------------- -----------------------
1998 1997 1998 1997
---- ---- ---- ----
(unaudited)
<S> <C> <C> <C> <C>
(a) Reconciliation of profit (loss) and loss accounts:
Profit (loss) for financial year reported under UK GAAP $140,929 $47,376 $(55,270) $ 24,772
Provision for migration tax (60,000) (42,625)
-------- ------- -------- --------
Net income (loss) in accordance with US GAAP $ 80,929 $47,376 $(55,270) $(17,853)
======== ======= ======== ========
Earnings (loss) per share - basic and dilutive $ 40,465 $23,688 $(27,635) $ (8,927)
======== ======= ======== ========
Weighted average shares outstanding - basic
and dilutive 2 2 2 2
======== ======= ======== ========
(b) Reconciliation of shareholders' equity
Shareholders' equity per UK GAAP $188,307 $47,378 $133,037 $ 72,150
Provision for migration tax (60,000) (60,000) (42,625)
-------- ------- -------- --------
Shareholders' equity in accordance with US GAAP $128,307 $47,378 $ 73,037 $ 29,525
======== ======= ======== ========
(c) Changes in shareholders' equity on a US GAAP basis
Shareholders' equity at beginning of period $ 47,378 $ 2 $128,307 $ 47,378
Net income (loss) 80,929 47,376 (55,270) (17,853)
-------- ------ -------- --------
Shareholders' equity at end of period $128,307 $47,378 $ 73,037 $ 29,525
======== ======= ======== ========
</TABLE>
F-31
<PAGE>
HAMILTON TELECOMMUNICATIONS LIMITED
NOTES TO THE FINANCIAL STATEMENTS
AS AT JUNE 30, 1998
(Information relating to December 31, 1998 and 1997 is Unaudited)
14. RECONCILIATION TO US GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES (US GAAP) (CONTINUED)
In preparing the summary of differences between UK and US GAAP, management
is required to make estimates and assumptions that affect the reported
amounts of assets and liabilities, the disclosure of contingent assets and
liabilities, and the estimates of revenue and expenses. Accounting
estimates have been employed in these financial statements to determine
reported amounts, including realizability, useful lives of tangible
assets, income taxes and other areas. Actual results could differ from
those estimates.
The following is a description of the US GAAP reconciling item:
In 1998, the Company migrated its domicile from the United Kingdom. In
doing so it ceased to be liable for income taxes in the United Kingdom.
However UK tax rules provide that an exportation tax be paid by such
exiting Companies on the value of certain tangible and intangible assets.
Under US Financial Accounting Standards Board (FASB) Statement of
Financial Accounting Standard No. 5, an accrual for this tax is provided
as its payment is both probable and an amount can be reasonably estimated.
Income tax expense differs from that calculated at the statutory UK rate
due to permanently nondeductible items, of which entertainment expense is
the primary item. As disclosed in the US GAAP reconciling item above, the
Company migrated its domicile in 1998 to a location which does not impose
an income tax.
CASH FLOW INFORMATION
Under UK GAAP, the Cash Flow Statement is presented in accordance with UK
Financial Reporting Standard No. 1, as revised ("FRS 1"). The Statement
prepared under FRS 1 presents substantially the same information as that
required under US GAAP as interpreted by Statement of Financial Accounting
Standard No. 95.
Under UK GAAP, cash flows are presented for operating activities; returns
on investments and servicing of finance; taxation; capital expenditure and
financial investment acquisitions and disposals and equity dividends paid.
US GAAP requires the classification of cash flows as resulting from
operating, investing and financing activities.
F-32
<PAGE>
HAMILTON TELECOMMUNICATIONS LIMITED
NOTES TO THE FINANCIAL STATEMENTS
AS AT JUNE 30, 1998
(Information relating to December 31, 1998 and 1997 is Unaudited)
14. RECONCILIATION TO US GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES (US GAAP) (CONTINUED)
Cash flows under UK GAAP in respect of interest received and taxation
would be included within the operating activities. Capital expenditure and
financial investment and cash flows from acquisitions and disposals would
be included within investing activities under US GAAP. Equity dividends
paid would be included within financing activities under US GAAP.
INCOME TAXES
The following is a reconciliation between the U.K. statutory income tax
rate and the amount recognized in the financial statements:
<TABLE>
<CAPTION>
Twelve months ended June 30, Six months ended December 31,
-------------------------------- -------------------------------
1998 1997 1998 1997
-------- -------- -------- --------
(Unaudited)
<S> <C> <C> <C> <C>
Computed income tax at statutory rate $ 37,853 $16,157 $ - $6,711
Nondeductible item - entertainment expense 23,697 5,960 - 476
Effect of migration to nontaxing status (22,228)
-------- -------- ------ ------
$ 39,322 $22,117 $ $7,187
======== ======== ====== ======
</TABLE>
MAJOR CUSTOMER AND SUPPLIERS
The Company in its provision of telecom service for information/audiotext
providers ("Ips") contracts with an international call carrier. This
carrier remits to Hamilton based on minute volume generated through a
country of origin telecom provider. Consequently, substantially all of the
Company's revenue comes from a single international call carrier. There
are numerous carriers capable of providing this service to Hamilton, and
on October 1, 1997, Hamilton changed its primary carrier.
The Company derives revenue from the volume of telecom traffic generated
by Ips. In 1998, two Ips accounted for 41% and 30% of cost of sales,
and in 1997, 18% and 16% of cost of sales.
The Company provides its service by having a contract granting it rights
to use certain destination phone numbers in a country. Hamilton has a
contract with a destination country telecom company which expires in March
2001.
F-33
