EXHIBIT D
INTERNATIONAL LONG DISTANCE CORPORATION
(A development stage company)
Consolidated Audited Financial Statements
December 31, 1999
International Long Distance Corporation
and Subsidiary
(A development stage company)
Consolidated Audited Financial Statements
December 31, 1999
<PAGE>
International Long Distance Corporation and Subsidiary
(a development stage company)
Contents
Page
Independent Auditor's Report 1
Consolidated Balance Sheet 2-3
Consolidated Statement of Operations 4
Consolidated Statement of Changes in Stockholder's Deficit 5
Consolidated Statement of Cash Flows 6-7
Notes to Consolidated Financial Statements 8-15
<PAGE>
LANEY
BOTELER &
KILLINGER
Certified Public Accountants
Independent Auditors' Report
Board of Directors
International Long Distance Corporation
Hertford, North Carolina
We have audited the accompanying consolidated balance sheet of International
Long Distance Corporation and Subsidiary (a development stage company), as of
December 31, 1999, and the related consolidated statements of operations,
changes in stockholder's deficit and cash flows for the period March 20, 1998
(date of inception) to December 31, 1999. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audit.
We conducted our audit in accordance with 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 includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of International Long
Distance Corporation and Subsidiary, as of December 31, 1999, and the results of
its operations and its cash flows for the period March 20, 1998 (date of
inception) to December 31, 199, in conformity with generally accepted accounting
principles.
LANEY BOTELER & KILLINGER
Atlanta, Georgia
June 2, 2000
<PAGE>
International Long Distance Corporation and Subsidiary
(a development stage company)
Consolidated Audited Balance Sheet
December 31, 1999
ASSETS
------
CURRENT ASSETS:
---------------------------------------------------------------------------
Accounts receivable - trade $ 101,181
Accounts receivable - officer 84,060
------
TOTAL CURRENT ASSETS 185,241
-------
PROPERTY AND EQUIPMENT
Land 39,374
Leasehold improvements 105,132
Computers and software 248,652
Furniture and Fixtures 4,660
Telephone switching equipment 3,100,135
TOTAL PROPERTY AND EQUIPMENT 3,497,953
Less: accumulated depreciation 718,697
PROPERTY AND EQUIPMENT, NET 2,779,256
=========
OTHER ASSETS:
Deposits 44,559
Deferred finance charges, net of
amortization of $121,018 322,187
-------
TOTAL OTHER ASSETS 366,746
TOTAL ASSETS $3,331,243
=========
The accompanying notes are an integral part of these financials
<PAGE>
International Long Distance Corporation and Subsidiary
(a development stage company)
Consolidated Audited Balance Sheet
December 31, 1999
LIABILITIES AND STOCKHOLDERS' DEFICIT
--------------------------------------------------------------------------------
CURRENT LIABILITIES
Cash overdraft 3,118
Accounts payable 2,528,020
Accrued expenses 145,027
Accrued interest 3,300
Current portion of capital lease obligations 123,715
Short-term notes payable 1,837,188
Unearned revenue 55,000
TOTAL CURRENT LIABILITIES 4,695,368
Capital lease obligations 255,490
STOCKHOLDERS' DEFICIT
Common Stock, 1.00 par value;
100,000 shares authorized;
500 shares issued and outstanding 500
Subscription agreements 6,065,584
Deficit accumulated during
the development stage (7,685,699)
TOTAL STOCKHOLDERS' EQUITY (1,619,615)
TOTAL LIABILITIES AND STOCKHOLDER'S DEFICIT $ 3,331,243
The accompanying notes are an integral part of these financials
<PAGE>
International Long Distance Corporation and Subsidiary
(a development stage company)
Consolidated Audited Statement of Operations
For the Period March 20, 1998 (date of inception)
to December 31, 1999
--------------------------------------------------------------------------------
REVENUE
Service revenue $ 173,464
Other income 1,030
174,494
COSTS AND EXPENSES
Costs of telephone services 961,674
Research and development 140,911
General and administrative 368,103
Other operating expenses 511,684
Maintenance and utilities 47,720
Travel, meals and entertainment 142,793
2,172,885
OPERATING LOSS (1,998,391)
OTHER EXPENSES
Amortization and finance costs 1,114,122
Bad Debt 1,300
Charitable Contributions 137,664
Depreciation 718,697
Interest 249,810
Loss on impairment of asset 279,071
Loss on uncollectible advance to affiliate 1,085,448
Loss on failed venture 2,011,396
Rents and Leases 89,800
TOTAL OTHER EXPENSES 5,687,308
NET LOSS $(7,685,699)
The accompanying notes are an integral part of these financial statements
<PAGE>
<TABLE>
<CAPTION>
International Long Distance Corporation and Subsidiary
(a development stage company)
Consolidated Audited Statement of Changes in Stock Holder's Deficit
For the Period March 20, 1998 (date of inception)
to December 31, 1999
Common Subscription Retained Total
Stock Agreements Earnings Stockholder's
--------- ---------- Deficit Deficit
--------------- -----------------
<S> <C> <C> <C> <C>
Balance beginning of period $ - $ - $ - $ 0
Issuance of 500 shares
of common stock 500 - 500
Funds/services received
for stock subscriptions - 6,065,584 - 6,065,584
Net loss
(7,685,699) (7,685,699)
Balance, December 31, 1999 $ 500 $ 6,065,584 $ (7,685,699) $ (1,619,615)
============ ================ =============== =================
</TABLE>
The accompanying notes are an integral part of these financial statements
<PAGE>
International Long Distance Corporation and Subsidiary
(a development stage company)
Consolidated Audited Statement of Cash Flows
For the Period March 20, 1998 (date of inception)
to December 31, 1999
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------- -------------------
<S> <C>
Cash flows from operating activities:
Cash received from service revenue $ 128,313
Cash paid to suppliers , employees and affiliate (894,992)
Cash paid for interest (246,510)
Cash advanced to failed joint venture (1,829,396)
Net Cash used on operating activities (2,842,585)
Cash flows from investing activities:
Purchases of property and equipment (3,307,229)
Payment for deposits (44,559)
Net cash provided by financing activities (3,351,788)
Cash flows from financing activities:
Proceeds from issuance of notes payable 2,525,838
Proceeds from stock subscription agreements 4,447,275
Proceeds from issuance of common stock 500
Repayment of notes payable and capital leases (779,240)
Net cash provided by financing activities 6,194,373
Net increase in cash and cash equivalents -
Cash and cash equivalents, beginning of period -
Cash and cash equivalents, end of period $ -
----------------------------------------------------------------------------------------- ===================
</TABLE>
The accompanying notes are an integral part of these financial statements
<PAGE>
<TABLE>
<CAPTION>
International Long Distance Corporation and Subsidiary
(a development stage company)
Consolidated Audited Statement of Cash Flows
For the Period March 20, 1998 (date of inception)
to December 31, 1999
------------------------------------------------------------------------------------------------ -------------------
<S> <C>
Cash Flows From Operating Activities:
Net loss $ (7,685,699)
Adjustments to reconcile net loss to
net cash used in operating activities
Depreciation 718,697
Amortization 1,114,122
Loss on impairment of asset 279,071
Non-cash portion of loss on failed venture 182,000
Changes in assets and liabilities:
(Increase) in assets
Accounts receivable - trade (101,181)
Accounts receivable - officer (84,060)
Increase in liabilities
Cash overdraft 3,118
Accounts payable 2,528,020
Accrued expenses 145,027
Accrued interest 3,300
Unearned revenue 55,000
----------------
Net cash used in operating activities (2,842,585)
----------------
Schedule of non-cash operating, investing, and financial transactions:
Acquisition of certain property and equipment
Capital leases
Equipment acquired $ 469,795
Capital leases assumed (379,206)
----------------
Cash paid $ 90,589
----------------
Conversion of investor services to equity
Subscription agreements
Settlement of claims $ 182,000
Services received 993,104
Acquisition of equipment leases 443,205
Subscription agreements issued (1,618,309)
================
Cash Paid $ -
----------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
International Long Distance Corporation and Subsidiary
(a development stage company)
Notes to Consolidated Audited Financial Statements
December 31, 1999
Note 1 - Summary of Significant accounting policies
Nature of business and basis of presentation
International Long Distance Corporation ("ILDC" or the "Company") was formed on
March 20, 1998, in the State of North Carolina as a long distance service
provider dedicated to utilizing state of the art technology to provide premier
service both domestically and internationally. The Company is headquartered in
Hertford, North Carolina and is currently in the process of raising capital to
expand it s operations.
Custom Telecom Solutions ("CTS") was formed as a joint venture corporation in
November 1999, by an agreement between the Company and StarTouch International.
The joint venture agreement was never executed. CTS remains a wholly-owned
subsidiary of the Company, but currently has no operations. All significant
intercompany transactions have been eliminated in consolidation.
Cash and cash equivalents
Cash and cash equivalents include all highly liquid investments with an original
maturity of three months or less.
Property, equipment and depreciation
Property and equipment are stated at cost. Maintenance and repairs are charged
to operations and major improvements are capitalized. Upon retirement, sale or
other disposition, the cost and accumulated depreciation are eliminated from the
accounts and any gain or loss is included in operations. Depreciation is
computed using the straight-line method for financial reporting purposes and
accelerated methods for income tax purposes. Estimated useful lives of the
assets range from three to fifteen years.
Property and equipment include assets acquired under capital leases of $469,795.
Capital leases are included as a component of telephone switching equipment.
Revenue recognition
Originally the Company provided services involving the sale of prepaid phone
cards. The corresponding revenue is included in the accompanying financial
statements. Proceeds from the sale of prepaid phone cards are originally
recorded on the balance sheet as unearned revenue. As the cards are used, the
income earned by ILDC is reported in the statement of operations as service
revenue. ILDC's primary source of revenue in the future is anticipated to be
generated through establishment of revenue producing long distance telephone
networks.
Income taxes
ILDC is subject to federal and state corporation income taxes on any net taxable
income. Deferred income tax assets and liabilities are computed annually for
differences between the financial statement and tax basis of assets and
liabilities that will result in taxable or deductible amounts in the future
based on enacted tax laws and rates applicable to the periods in which the
differences are expected to affect taxable income. Valuation allowances are
established when necessary to reduce deferred tax assets to the amount expected
to be realized. Income tax expenses is the tax payable or refundable for the
period plus or minus the change during the period in deferred tax assets and
liabilities.
Uses of estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
revenues and expenses during the period reported. Actual results could differ
from those estimates.
<PAGE>
International Long Distance Corporation and Subsidiary
(a development stage company)
Notes to Consolidated Audited Financial Statements
December 31, 1999
Start-Up expenses
In accordance with Statement of Position 98-5, Reporting on the Costs of
Start-up Activities, the Company expensed all organization and start-up expenses
as incurred.
Allowance for doubtful accounts
Accounts receivable have been reviewed by management and no allowance for
doubtful accounts is considered necessary as of December 31, 1999.
Deferred financial charges
In the early stages of development, certain investors assisted the Company in
obtaining some of the telephone switching equipment necessary to further the
Company's operations. The investors leased the equipment and assigned the leases
to the Company. These equipment leases are recorded on the books as capital
leases (Note 8). The total cost of equipment leased by investors and assigned to
ILDC is $469,795. ILDC has either directly made all payments required under the
leases or given credit to the investors for any lease payments made by the
investors.
In consideration for the assistance provided by the investors in obtaining the
equipment leases, ILDC has credited these investors with joint venture or
profit-sharing agreements (Note 2) totaling $443,205. These costs have been
recorded as deferred finance charges and are being amortized over the term of
leases. Amortization of deferred finance charges for the period ended December
31, 1999 was $121,018.
Additionally, ILDC credited investors $993,104 for providing short-term loans
and lines of credit to ILDC or obtaining additional investors. This amount is
included as a component of amortization and finance costs in the consolidated
statement operations.
Common stock
At December 31, 1999, ILDC had 100,000 shares of $1.00 per value common stock
authorized with 500 shares issued and outstanding. All of the shares outstanding
at December 31, 1999, are owned by the Anthony C. Overman Revocable Trust. The
trustee is Anthony C. Overman, president of ILDC.
Subsequent to December 31, 1999, as a part of the merger and reorganization
(Note 3), the stock was split and the number of authorized shares was increased
to 11,000,000.
<PAGE>
International Long Distance Corporation and Subsidiary
(a development stage company)
Notes to Consolidated Audited Financial Statements
December 31, 1999
Note 2 - Stock subscription agreements
In order to obtain capital for the purposes of the construction, installation
and maintenance of a telephone switching and call router system and to fulfill
liabilities and obligations associated with start-up expenses, the Company
entered into joint venture and profit sharing agreements with various investors.
In addition, the Company credited certain investors with joint venture or
profit-sharing agreements in exchange for services provided to ILDC (Note 1) and
in settlement of claims againgst ILDC (Note 6) Through December 31, 1999, ILDC
issued joint venture and profit-sharing totaling $6,065,584 in exchange for the
following consideration:
Consideration Amount
------------- ------
Cash received $4,447,275
Acquisition of equipment leases 443,205
Providing short-term loans and
raising capital 993,104
Settlement of claims 182,000
------------
$6,065,584
----------
No payments were made under these agreements since ILDC had not reached
profitability.
Subsequent to December 31, 1999, the investors agreed to cancel their joint
venture and profit sharing agreements in exchange for common stock of ILDC. In
order to facilitate the exchange, the Company increased the number of authorized
shares from 100,000 to 11,000,000 (Note 1). Generally, each investor will
receive one share of common stock for every $5.00 invested through joint venture
or profit sharing agreements. The shares will be issued in conjunction with the
merger and reorganization (Note 3).
The amount reported in stockholder's deficit as subscription agreements of
$6,065,584 represents the amounts invested through joint venture and profit
sharing agreements. The Company expects to issue 1,249,350 shares of stock for
the subscription agreements. Subsequent to December 31, 1999, ILDC received
additional capital of approximately $800,000 through the issuance of joint
venture agreements. The additional joint venture agreements will also be
cancelled in exchange for common stock of ILDC at the merger.
Note 3 - Merger and reorganization
The Company as of May 18, 2000, has finalized plans for a merger and
reorganization with a publicly traded entity. Closing on the merger is
anticipated to be June 30, 2000. Upon completion of the merger, all of the ILDC
stock issued and outstanding at June 30, 2000, will be converted into the right
to receive newly issued shares of the publicly traded common stock, par value
$.001. The merger is expected to be a tax free reorganization within the meaning
of Section 368 of the Internal Revenue Code.
Note 4 - Income taxes
ILDC has a net operating loss of $7,685,699 as of December 31, 1999, which will
be carried forward to offset future taxable income. The tax benefit and deferred
tax asset totaling $2,984,000, generated by this net operating loss has been
offset by a valuation allowance due to the uncertainty of profitable operations.
<PAGE>
International Long Distance Corporation and Subsidiary
(a development stage company)
Notes to Consolidated Audited Financial Statements
December 31, 1999
Note 5 - Related party transactions
ILDC was affiliated with National Marketing Corporation (NMC), a marketing
organization, which is owned by the president of ILDC. ILDC advanced $1,085,448
to National Marketing Corporation during the calendar years 1998 and 1999, which
will not be repaid since operations of NMC have been discontinued. A substantial
portion of the funds advanced to NMC were forwarded to Prepaid Cellular
Services, LLC (Note 6) in the form of loans, advances, and direct payment of
Prepaid Cellular's liabilities. Prepaid Cellular ceased operations during 1999.
As a result, these advances to National Marketing Corporation have been
reflected as uncollectible advances to affiliate in the accompanying
consolidated financial statements.
ILDC has advanced the president $84,060 as of December 31, 1999. No interest is
charged on the advance.
ILDC received advances from a relative of the president totaling $41,985. This
amount is included in accounts payable at December 31, 1999.
Note 6 - Prepaid Cellular Services, LLC
ILDC entered into various transactions with Prepaid Cellular Services, LLC (PCS)
regarding the use of the ILDC, telephone switching and network services. As the
relationship with PCS progressed, the Company also made cash advances to PCS,
purchased equipment for PCS and paid operating expenses of PCS. In addition,
Anthony Overman, the president of ILDC served for a brief period as CEO of PCS.
ILDC also attempted to acquire the stock of PCS and merge PCS into ILDC. The
acquisition of the stock was rejected and irreconcilable differences between the
companies arose. Due to the significant amount invested into PCS, ILDC continued
to fund the operations of PCS in an attempt to reach a point where revenue could
be generated or some of the investment recovered. PCS ultimately failed.
Numerous claims were made against PCS by various creditors and third parties.
Due to the close relationship of ILDC with PCS and the fact that the ILDC
president served as CEO of PCS, claims have been made against ILDC for some of
the PCS debts and obligations (Note 10).
ILDC funded PCS amounts totaling $2,518,149. These amounts include advances by
ILDC to PCS, payment of PCS expenses and obligations, and a settlement of
approximately $468,000 to Garwell Limited Partnership for advances to PCS. The
Garwell claim was settled by issuance of ILDC common stock. Subsequent to
December 31, 1999, ILDC agreed to issue 200,000 shares of common stock to
Garwell or its affiliates in exchange for cancelling the $468,000 claim and in
exchange for $350,000 which had previously been invested in ILDC (Notes 2 and
3). When PCS ceased operations, ILDC took possession of equipment totaling
$506,753. The remaining costs related to PCS, totaling $2,011,396, have been
charged to expense as loss on failed venture
ILDC has assumed responsibility for the portion of the debts incurred by PCS in
cases where management has determined that ILDC has financially benefitted or is
ultimately liable for payment. These liabilities have been recorded in the
accompanying consolidated financial statements.
<PAGE>
International Long Distance Corporation and Subsidiary
(a development stage company)
Notes to Consolidated Audited Financial Statements
December 31, 1999
Note 7 - Short-term debt
At December 31, 1999 short-term notes payable consisted of the following:
<TABLE>
<CAPTION>
<S> <C>
Note payable to Comdial due in monthly installments of $25,550 plus interest at
prime plus 2.5% (10.75% at December 31, 1999)
with remaining principal and interest due at maturity on September 30, 2000. $ 228,859
Note payable to Crafton Matthews originally due January 15th 2000, and extended
to April 19, 2000. The note was paid in full at the extended
due date. 29,000
Note payable to StarTouch International due in one payment
including interest at 10% on June 5, 2000. Additional amounts
totaling $488,000 were borrowed during calender year 2000. 1,579,329
Note payable StarTouch International due in one payment including interest at
10% on June 5, 2000. Additional amounts totaling $488,000 were borrowed during
the calendar year 2000 and are also due on June 5, 2000. The note arose from
advances relating to a proposed joint venture agreement between ILDC Star Touch
(Note 1). When the joint venture was abandoned, all amounts due were converted
to a note payable dated February 5, 2000. Interest accrues from the date of the note. 1,579,329
</TABLE>
Note 8 - Capital lease obligations
Included in long-term debt are lease obligations that have been capitalized for
financial statement purposes. Minimum future lease payments under capital leases
as of December 31, 1999, are as follows:
<PAGE>
Year ending December 31. Amount
----------------------- ------
2000 $175,533
2001 150,464
2002 106,581
2003 53,583
Total minimim lease payments 486,161
Less: amounts representing interest (106,956)
Present value of net minimum
lease payments $379,205
Note 9 - Impairment of assets used in operations
In 1999, during the course of ILDC's review of its operations, the Company
assessed the recoverability of the carrying value of the Compaq Tandem SCP
platform, which resulted in an impairment loss of $279,071. This loss reflects
the amount by which the carrying value exceeds the estimated fair value of the
asset. The impairment loss is reported in the consolidated statement of
operations.
<PAGE>
International Long Distance Corporation and Subsidiary
(a development stage company)
Notes to Consolidated Audited Financial Statements
December 31, 1999
Note 10 - Legal matters
ILDC is currently being sued by Compaq Computer Corporation for $820,439 which
includes interest and court costs, for equipment purchased and currently in the
possession of ILDC. The full amount of this potential liability is included in
accounts payable in the accompanying consolidated financial statements. The
Company and the plaintiff are currently engaged in negotiations in an attempt to
settle this liability.
There is a possibility that the Company could be included in the numerous claims
asserted against Prepaid Cellular Services, LLC (Note 6) due to the relationship
between the two entities. The potential liability from these claims can not be
estimated in the opinion of management and its counsel.
Note 11 - BDR Consulting, Inc.
On February 16, 2000, BDR Consulting, Inc ("BDR") entered into an agreement with
ILDC where BDR would assist ILDC in raising at least $1,500,000 for its
operations and in negotiating a merger between ILDC and a publicly traded
company. For its services and the financing, BDR will receive shares of ILDC
equal to the then outstanding shares of the Company which would make BDR a 50%
shareholder. As of May 31, 2000, BDR has raised approximately $3,600,000 in
financing for ILDC. Shares of ILDC will be issued in a simultaneous transaction
with the merger. Until that time all funds received from BDR are being treated
as advances.
Note 12 - Commitments
ILDC currently leases an office building for $5,000 per month under a 24 month
lease agreement due to expire October 31, 2001. The lease contains an absolute
purchase option requiring the Company to purchase the building upon expiration
of the lease for $750,000. The lease was originally in the name of a company
owned by ILDC's sole shareholder. The lease was assigned to ILDC during the
development period.
ILDC also leases office space in Atlanta, Georgia for $2,797 per month under a
26-month lease assumed from the prior lessee, Prepaid Cellular Services, LLC
(Note 6). The lease was due to expire April 30, 2001. The lease was renegotiated
in June 2000. Additional space was added to the original lease. The current
lease is for $13,870 per month for a term of five years, to expire in May 2005,
with one renewal option of five years.
As of December 31, 1999, ILDC has outstanding purchase orders totaling
approximately $5,500,000 for the purchase of additional telephone switching
equipment
Note 13 - Financial instruments
The Financial Accounting Standards Board requires disclosure of information
about financial instruments and related off-balance sheet risk and
concentrations of credit risk. The Company places its cash with insured
financial institutions. However, at times during the year, the cash balances
exceeded the federally insured limits of the Federal Deposit Insurance
Corporation.
Note 14 - Continuation as a going concern
The Company incurred operating losses of $7,685,699 for the period from
inception through December 31, 1999. These consolidated financial statements are
presented on the basis which assumes the continued existence of International
Long Distance Corporation as a going concern. Continuation as a going concern
contemplates the realization of assets and the satisfaction of liabilities in
the normal course of business over a reasonable length of time. The financial
statements do not include any adjustments that might be necessary if the Company
is unable to continue as a going concern. Continuation of the Company as a going
concern is contingent upon completion of the merger (Note 3), continued
financial support from investors and creditors and upon achieving and
maintaining profitable operations.
