SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
Amendment No. 1
Current Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
Date of Report (date of event reported): March 20, 2000.
Q COMM INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
Commission File Number: 0-29123
Utah 88-4058493
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1145 SOUTH 1680 WEST 84058-4930
OREM, UTAH
(Address of principal executive (Zip Code)
offices)
Registrant's Telephone Number: (801) 226-4222
Azore Acquisition Corporation
8 East Broadway, Suite 620, Salt Lake City, UT 84111
(Former name or former address, if changed since last report)
<PAGE>
Item 7. Financial Statements and Exhibits
Financial Statements
Included with this amendment to the Report on Form 8-K for Q
Comm International, Inc., originally filed with the Securities
and Exchange Commission on March 20, 2000, are the audited
financial statement of Q Comm International, Inc., for the years
ended December 31, 1999 and 1998, and pro forma financial
information giving effect to the acquisition.
2
<PAGE>
QCOMM INTERNATIONAL, INC. AND SUBSIDIARY
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
3
<PAGE>
QCOMM INTERNATIONAL, INC. AND SUBSIDIARY
CONTENTS
PAGE
- Independent Auditors' Report 5
- Consolidated Balance Sheet, December 31, 1999 6
- Consolidated Statements of Operations, for the
years ended December 31, 1999 and 1998 7
- Consolidated Statement of Stockholders' Equity, from
January 1, 1998 through December 31, 1999 8 - 9
- Consolidated Statements of Cash Flows, for the
years ended December 31, 1999 and 1998 10 - 11
- Notes to Consolidated Financial Statements 12 - 18
4
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors
QCOMM INTERNATIONAL, INC. AND SUBSIDIARY
Orem, Utah
We have audited the accompanying consolidated balance sheet of
QComm International, Inc. and Subsidiary at December 31, 1999,
and the related consolidated statements of operations,
stockholders' equity and cash flows for the year ended December
31, 1999. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility
is to express an opinion on these financial statements based on
our audits. The financial statements of QComm International,
Inc. and Subsidiary as of and for the year ended December 31,
1998 were audited by other auditors whose report, dated September
30, 1999 expressed an unqualified opinion on these financial
statements. The financial statements as of December 31, 1998
reflect an accumulated deficit of $1,504,664. The other
auditors' report has been furnished to us, and our opinion,
insofar as it relates to the amounts included for such prior
periods, is based solely on the report of the other auditors.
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 consolidated financial statements audited by
us present fairly, in all material respects, the financial
position of QComm International, Inc. and Subsidiary as of
December 31, 1999, and the results of its operations and its cash
flows for the year ended December 31, 1999, in conformity with
generally accepted accounting principles.
PRITCHETT, SILER & HARDY, P.C.
March 24, 2000
Salt Lake City, Utah
5
<PAGE>
QCOMM INTERNATIONAL, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
ASSETS
December 31,
1999
____________
CURRENT ASSETS:
Cash in bank $ 42,488
Accounts receivable 92,673
___________
Total Current Assets 135,161
PROPERTY & EQUIPMENT, net 58,648
OTHER ASSETS
Related party receivable 5,000
Deferred stock offering costs 64,375
Deposits 5,738
___________
Total Other Assets 75,113
___________
$ 268,922
___________
LIABILITIES AND STOCKHOLDERS' (DEFICIT)
CURRENT LIABILITIES:
Accounts payable $ 651,788
Accrued expenses 276,279
Notes payable - line of credit 143,920
Advances payable 50,000
Total current liabilities __________
1,121,987
__________
LONG-TERM LIABILITIES:
Convertible debenture 650,000
__________
Total long-term liabilities 650,000
__________
1,771,987
__________
STOCKHOLDERS' (DEFICIT):
Preferred stock, $.001 par value,
1,000,000 shares authorized,
no shares issued and outstanding -
Common stock, $.001 par value,
50,000,000 shares authorized,
6,629,675 shares issued and
outstanding 6,630
Capital in excess of par value 1,190,144
Deficit accumulated during the
development stage (2,699,839)
___________
Total Stockholders' (Deficit) (1,503,065)
___________
$ 268,922
___________
The accompanying notes are an integral part of this consolidated
financial statement.
6
<PAGE>
QCOMM INTERNATIONAL, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
For the
year ended
December 31,
_____________________
1999 1998
_________ _________
REVENUE:
Sales, net $1,094,427 $3,165,462
_________ _________
Total Revenue 1,094,427 3,165,462
Cost of goods sold 964,467 2,057,970
_________ _________
Gross profit 129,960 1,107,492
EXPENSES:
General and administrative 1,662,318 2,793,926
_________ _________
Total Expenses 1,662,318 2,793,926
_________ _________
LOSS FROM OPERATIONS (1,532,358) (1,686,434)
OTHER INCOME:
Other Income 343,053 231,584
Other Expense (169,982) -
_________ _________
Total Other Income 173,071 231,584
_________ _________
EXTRAORDINARY ITEMS - GAIN ON
EXTINGUISHMENT OF DEBT 164,112 125,087
_________ _________
LOSS BEFORE INCOME TAXES (1,195,175) (1,329,763)
CURRENT TAX EXPENSE - -
DEFERRED TAX EXPENSE - -
_________ _________
NET LOSS $(1,195,175) $(1,329,763)
_________ _________
LOSS PER COMMON SHARE:
Before extraordinary item $ (.20) $ (.55)
Extraordinary item - .05
Net Loss $ (.20) $ (.50)
_________ _________
The accompanying notes are an integral part of these consolidated
financial statements.
7
<PAGE>
QCOMM INTERNATIONAL, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FROM JANUARY 1, 1998 THROUGH DECEMBER 31, 1999
<TABLE>
<CAPTION>
Deficit
Accumulated
Preferred Stock Common Stock Capital in Stocks During the
_____________________________________________ Excess of Subscription Development
Shares Amount Shares Amount Par Value Receivable Stage
___________________________________________________________________________________
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, January 1, 1998 - $ - 10,987,724 $ 73,667 $ 11,604 - $ (202,310)
Reverse stock split - - (10,438,337) - - - -
Recapitalization of company - - 4,944,672 (68,173) 175,264 - 27,409
Stock subscription issued in
forgiveness of debt - - - - - 104,823 -
Issuance of common stock
for services rendered - - 34,000 34 23,266 - -
Issuance of common stock
for cash - - 196,000 196 151,542 - -
Issuance of warrants for
services rendered - - - - 3,192 - -
Net loss - - - - - - (1,329,763)
___________________________________________________________________________________
BALANCE, December 31, 1998 - $ - 5,724,059 $ 5,724 $ 364,868 104,823 $(1,504,664)
Issuance of 12,000 shares
common stock for services,
at $.75 per share
January 1999 - - 12,000 12 8,988 - -
Issuance of 45,631 shares
common stock for cash,
$.75 per share, February,
1999 - - 45,631 46 34,177 - -
Issuance of 13,333 shares
common stock for services
at $.75 per share March 1999 - - 13,333 13 9,987 - -
Issuance of 1,900 shares of
common stock for services
at $.75 per share May 1999 - - 1,900 2 1,406 - -
Issuance of 299,980 shares of
common stock for cash
at $.75 per share May 1999 - - 95,334 95 71,402 - -
Issuance of 209,646 shares of
common stock for subscription
at $.50 per share May 1999 - - 209,646 210 104,613 (104,823) -
</TABLE>
The accompanying notes are an integral part of this financial
statement.
8
<PAGE>
QCOMM INTERNATIONAL, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FROM JANUARY 1, 1999 THROUGH DECEMBER 31, 1999
[Continued]
<TABLE>
<CAPTION>
Deficit
Accumulated
Preferred Stock Common Stock Capital in Stocks During the
_________________________________________ Excess of Subscription
Development
Shares Amount Shares Amount Par Value Receivable Stage
_______________________________________________________________________________
<S> <C> <C> <C> <C> <C> <C> <C>
Issuance of 260,113 shares of
common stock for cash of
(or $.75 per share)
October 1999 - - 260,113 260 171,760 - -
Issuance of 56,711 shares of
common stock for cash of
$37,500 November 1999 - - 56,711 57 37,443 - -
Issuance of 85,948 shares of
common stock for services
at $.75 per share, December
1999 - - 85,948 86 64,375 - -
Issuance of 125,000 shares
common stock for interest,
at $.75 per share, December
1999 - - 125,000 125 93,625 - -
Beneficial conversion feature of
convertible debenture - - - - 227,500 - -
Net loss for the year ended
December 31, 1999 - - - - - - (1,195,175)
__________________________________________________________________________
BALANCE, December 31, 1999 - $ - 6,629,675 $ 6,630 $1,190,144 - $(2,699,839)
__________________________________________________________________________
</TABLE>
The accompanying notes are an integral part of this financial
statement.
9
<PAGE>
QCOMM INTERNATIONAL, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the
years ended
December 31,
____________________
1999 1998
____________________
Cash Flows From Operating Activities:
Net loss $ (1,195,175) $ (1,329,763)
Adjustments to reconcile net
loss to net cash used by
operating activities:
Gain on extinguishment of debt - 125,087
Beneficial conversion feature 227,500 -
Depreciation expense 5,279 567
Provision for losses on receivable - 794,128
Removal of liability - (257,005)
Stock issued for services 89,771 23,300
Change in assets and liabilities:
Increase (decrease) accounts receivable (620,585) (47,728)
Increase (decrease) related party receivable (3,379) -
Increase (decrease) notes receivable 15,906 (78,215)
(Increase) decrease in other assets (65,113) 8,317
(Increase) decrease in accounts payable (103,513) 190,851
Increase in accrued expenses 71,211 88,096
Increase in related party obligations (5,539) 154,953
_______________________
Net Cash (Used) by Operating Activities (874,207) (327,412)
_______________________
Cash Flows From Investing Activities:
Purchase property & equipment (61,660) (2,834)
______________________
Net Cash (Used) by Investing Activities (61,660) (2,834)
______________________
Cash Flows From Financing Activities:
Issuance of common stock 409,068 286,238
Issuance of long-term obligation 650,000 42,886
Net decrease in lines of credit (38,886) (2,397)
Warrants issued - 3,192
Payments on long-term obligation (42,866) -
______________________
Net Cash Provided by Financing Activities 977,336 329,899
______________________
Net Increase (Decrease) in Cash 41,469 (347)
Cash at Beginning of Period 1,019 1,366
______________________
Cash at End of Period $ 42,488 $ 1,019
______________________
Supplemental Disclosures of Cash Flow Information:
Cash paid during the periods for:
Interest $ - $ 22,562
Income taxes $ - $ -
10
<PAGE>
QCOMM INTERNATIONAL, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
[Continued]
Supplemental Schedule of Noncash Investing and Financing
Activities:
For the year ended December 31, 1999:
During January 1999, the Company issued 12,000 shares of pr
eviously authorized by unissued common stock for services
rendered valued at $9,000(or $.75 per share).
During March 1999, the Company issued 13,333 shares of
previously authorized by unissued common stock for services
rendered valued at $10,000(or $.75 per share).
During May 1999, the Company issued 1,900 shares of previously
authorized by unissued common stock for services rendered
$1,408(or $.75 per share).
During December 1999, the Company issued 85,948 shares of p
reviously authorized by unissued common stock for services
rendered $64,461(or $.75 per share).
During December 1999, the Company recorded an addition to a
dditional paid in capital in the amount of $227,500 due to a
beneficial conversion feature of the Convertible debentures.
For the year ended December 31, 1998:
The Company issued 34,000 shares of common stock to an
employee and a legal consultant for services received. The
fair value of the services was approximately $23,300.
Extraordinary gains, net of fees, were realized on the
forgiveness of accounts payable to vendors in the amount of
approximately $125,087.
The Company issued to a former officer a stock subscription to
purchase 209,646 shares of common stock at $0.50 per share for
forgiveness of debt of $104,823.
The Company issued a warrant to purchase 49,445 shares of
common stock at $1.00 per share for services received. The
fair value of the services was $3,192
The Company removed a dispute charges payable in the amount of $257,005.
The accompanying notes are an integral part of these consolidated
financial statements.
11
<PAGE>
QCOMM INTERNATIONAL, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization - QComm (The Company) was organized on February 7,
1986 as Four Rivers Development, Inc. This name was changed on
August 3, 1998 to QComm International Inc. in conjunction with
the purchase of three operating companies. The Company is
headquartered in Orem, Utah but provides telecommunication
services to end users throughout the United States. The Company
has, at the present time, not paid any dividends and any
dividends that may be paid in the future will depend upon the
financial requirements of the Company and other relevant factors.
Organization Costs - Organization costs, which reflect amounts
expended to organize the Company, were expensed in accordance
with Statement of Position 98-5, "Reporting on the Costs of Start-
Up Activities".
Revenue Recognition - Revenue is recognized as services are
performed. Financing through notes receivable is serviced
through independent collection agencies. Revenue is recognized
when the notes are signed and the related service provided.
Ongoing revenue and expenses from telecommunication services are
passed through to customers, with the related portion due to the
Company recognized upon notification from the service provider.
Depreciation and Amortization - Depreciation of property and
equipment is provided on the straight-line method over the
estimated useful lives of the assets of five years.
Loss Per Share - The Company computes loss per share in
accordance with Statement of Financial Accounting Standards
(SFAS) No. 128 "Earnings Per Share," which requires the Company
to present basic earnings per share and dilutive earning per
share when the effect is dilutive. [See Note 12]
Income Taxes - The Company accounts for income taxes in
accordance with Statement of Financial Accounting Standards No.
109, "Accounting for Income Taxes." This statement requires an
asset and liability approach for accounting for income taxes.
Cash and Cash Equivalents - For purposes of the financial
statements, the Company considers all highly liquid debt
investments purchased with a maturity of three months or less to
be cash equivalents.
Advertising Costs - Advertising and marketing costs are expensed
as incurred.
Accounting 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, the disclosures of
contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from
those estimated by management.
12
<PAGE>
QCOMM INTERNATIONAL, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES [Continued]
Recently Enacted Accounting Standards - Statement of Financial
Accounting Standards (SFAS) No. 132, "Employer's Disclosure about
Pensions and Other Postretirement Benefits", SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities",
SFAS No. 134, "Accounting for Mortgage-Backed Securities.", SFAS
No. 135, "Rescission of FASB Statement No. 75 and Technical
Corrections", SFAS No. 136, "Transfers of Assets to a not for
profit organization or charitable trust that raises or holds
contributions for others", and SFAS No. 137 "Accounting for
Derivative Instruments and Hedging Activities - deferral of the
effective date of FASB statement No. 133 ( an amendment of FASB
Statement No. 133.)," were recently issued. SFAS No. 132, 133,
134, 135, 136 and 137 have no current applicability to the
Company or their effect on the financial statements would not
have been significant.
NOTE 2 - RECAPITALIZATION
On August 3, 1998 the Company changed its name from Four Rivers
Development, Inc. to QComm International, Inc. The Company also
effected a 1 to 20 reverse stock split of its common stock,
thereby reducing its shares outstanding from 10,987,724 to
549,387 shares. Also on August 3, 1998, the Company acquired the
following three companies: Teleconnect, Inc. (TCI), a Utah
corporation, was acquire through the issuance of 3,385,481 shares
of the Company's common stock to the shareholders of TCI in
exchange for all of the outstanding common stock of TCI. TCI was
originally formed on January 28, 1993. Teleshare 900, Inc.
(T900), a Utah corporation, was acquired through the issuance of
994,037 shares of the Company's common stock to the shareholders
of T900 in exchange for all of the outstanding common stock of
T900. T900 was originally formed on January 28, 1993. QComm
International, Inc. (QCI), a Nevada corporation, was acquired
through the issuance of 566,154 shares of the company's common
stock to the shareholders of QCI for all outstanding stock of
QCI. QCI was originally formed on December 5, 1997.
The three acquired companies were merged to form QCMERCO, Inc.,
which was subsequently renamed QComm, Inc., a wholly owned
subsidiary of QComm International, Inc. The combination of QComm
International, Inc. was recorded as a recapitalization.
After the acquisitions there were 5,494,059 shares of common
stock outstanding with approximately 10 percent of those shares
being held by the former (pre-acquisition) stockholders of the
Company.
NOTE 3 - PROPERTY & EQUIPMENT
The following is a summary of property and equipment, less
accumulated depreciation as of December 31, 1999:
1999
______________
Equipment $ 64,494
Less: Accumulated Deprecation (5,846)
______________
$ 58,648
______________
Depreciation expense for the year ended December 31, 1999 was
$5,279.
13
<PAGE>
QCOMM INTERNATIONAL, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4 - LINES OF CREDIT
The Company has a $150,000 line of credit with a bank, secured by
equipment and a personal guarantee from an officer of the
Company. The amount borrowed on the line was $143,920 at
December 31, 1999. The interest rate is prime plus 2 percent,
plus an additional 5 percent default rate due to noncompliance
with the line of credit covenants (14.75 percent at December 31,
1999) with interest payments due monthly, and the principal due
on demand.
The line of credit agreements contain various restrictive
covenants. At various times during the year and as of December
31, 1999, the Company was not in compliance with certain
covenants and as a result, the bank has imposed a default
interest rate on the lines of credit. Subsequent to December 31,
1999 the Company settled the line of credit and paid all amounts
owed.
NOTE 5 - SETTLEMENT AGREEMENT
During 1999, the Company settled, with a prior landlord, certain
disputed charges relating to a building lease during the year
ended December 31, 1998. As a result of the settlement, the
Company agreed to pay the landlord in the amount of $30,827.
Payments commenced in October, 1999 with a payment of $5,685 and
additional monthly payments of $3,083, expiring in November 2000.
The agreement requires no interest payments as long as the
Company remains current on the principal payments.
NOTE 6 - CAPITAL STOCK AND WARRANTS
Common Stock - During January 1999, the Company issued 12,000
shares of previously authorized by unissued common stock for
services rendered valued at $9,000(or $.75 per share).
During February 1999, the Company issued 45,631 shares of
previously authorized but unissued common stock for cash of
$34,223(or $.75 per share).
During March 1999, the Company issued 13,333 shares of previously
authorized but unissued common stock for services rendered valued
at $10,000(or $.75 per share).
During May 1999, the Company issued 1,900 shares of previously
authorized but unissued common stock for services rendered
$1,408(or $.75 per share).
During October 1999, the Company issued 299,980 shares of
previously authorized but unissued common stock for cash of
$116,412 and a subscription receivable in the amount of
$104,823(or $.75 per share).
During December 1999, the Company issued 85,948 shares of
previously authorized but unissued common stock for services
rendered $64,461(or $.75 per share). During December 1999, the
Company issued 125,000 shares of previously authorized but
unissued common stock for cash of $115,000(or $.75 per share).
During December 1999, the Company recorded an addition to
additional paid in capital in the amount of $227,500 due to a
beneficial conversion feature of the Convertible debentures.
14
<PAGE>
QCOMM INTERNATIONAL, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6 - CAPITAL STOCK AND WARRANTS [Continued]
The Company's board of directors has the authority to grant stock
warrants to employees, officers and certain non-employees. These
warrants are considered nonqualified for income tax purposes. As
of December 31, 1998, the Company has granted a warrant to
purchase 49,445 shares of the Company's common stock at $1.00 per
share. The warrant vests immediately upon grant and has a
weighted-average remaining contractual life of 4.5 years. During
the year ended December 31, 1999 the Company granted stock
options to officers and directors of the Company. A total of
820,000 options were granted at exercise priced ranging from
$1.50 to $2.25 per share. The options vest over a 5 year term
and expire on April 30, 2004.
NOTE 7 - STOCK OPTIONS
The Company applies APB Opinion No. 25 in accounting for stock
options granted under the employment agreements. Compensation
of $0 and $0 was recorded in 1999 and 1998, respectively. The
Corporation has adopted the disclosure-only provisions of
Statements of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation".
The fair value of each option granted is estimated on the date
granted using the Black-Scholes option pricing model, with the
following weighted-average assumptions used for grants during
the period ended December 31, 1999: risk-free interest rate of
5.5%, expected dividend yield of zero, an expected life of 5
years and expected volatility of 100%.
A summary of the status of the options granted under agreements
at December 31, 1999, and changes during the periods then ended
is presented in the table below:
1999
______________________
Weighted Average
Shares Exercise Price
____________________
Outstanding at
beginning of period 49,445 $ 1.00
Granted 820,000 1.59
Exercised - -
Forfeited - -
Canceled - -
________ ____________
Outstanding at end of Period 869,445 $ 1.56
________ ____________
Exercisable at end of period 213,445 $ 1.45
________ ____________
Weighted average fair value of
options granted 869,445 $ -
_________ _____________
15
<PAGE>
QCOMM INTERNATIONAL, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7 - STOCK OPTIONS [CONTINUED]
A summary of the status of the options outstanding under
agreements at December 31, 1999 is presented below:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
______________________________________________________________
Weighted-Average Weighted Average Weighted-Average
Range of Number Remaining Exercise Number Exercise
Exercise Prices Outstanding Contractual Life Price Exercisable Price
__________________________________________________________________________________________
<C> <C> <C> <C> <C> <C>
$1.00 49,445 3.5 years $ 1.00 49,445 $ 1.00
$1.50 720,000 4.3 years $ 1.50 144,000 $ 1.50
$2.25 100,000 4.3 years $ 2.25 20,000 $ 2.25
</TABLE>
The Company accounts for options agreements under Accounting
Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees", and related interpretations. Had
compensation cost for these options been determined, based
on the fair value at the grant dates for awards under these
agreements, consistent with the method prescribed by
Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation", the Company's net
loss would have been the proforma amounts as indicated
below:
For the Year Ended
December 31,
_________________________
1999 1998
_________________________
Net Loss As reported $(1,195,175) $(1,329,763)
Proforma $(1,195,175) $(1,329,763)
Loss per Share As reported $ (.20) $ (.50)
Proforma $ (.20) $ (.50)
NOTE 8 - INCOME TAXES
The Company accounts for income taxes in accordance with
Statement of Financial Accounting Standards No. 109 "Accounting
for Income Taxes". SFAS No. 109 requires the Company to provide
a net deferred tax asset/liability equal to the expected future
tax benefit/expense of temporary reporting differences between
book and tax accounting methods and any available operating loss
or tax credit carryforwards. The Company has available at
December 31, 1999, an operating loss carryforward of
approximately $2,699,000, which may be applied against future
taxable income and which expires in various year through 2019.
The amount of and ultimate realization of the benefits from the
operating loss carryforward for income tax purposes is dependent,
in part, upon the tax laws in effect, the future earnings of the
Company, and other future events, the effects of which cannot be
determined. Because of the uncertainty surrounding the
realization of the loss carryforward the Company has established
a valuation allowance equal to the amount of the loss
carryforward and, therefore, no deferred tax asset has been
recognized for the loss carryforward. The net deferred tax asset
is approximately $917,000 as of December 31, 1999, with an
offsetting valuation allowance at December 31, 1999 of the same
amount. The change in the valuation allowance for the year ended
December 31, 1999 is approximately $406,000.
16
<PAGE>
QCOMM INTERNATIONAL, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9 - CONVERTIBLE DEBENTURE
The following is a summary of convertible debentures as of
December 31, 1999:
1999
______________
2% unsecured note payable to a shareholder
due May 15, 2004 convertible at 65% of Market $ 650,000
______________
Less: Current Portion -
______________
Long-term Portion $ 650,000
______________
The Company has recorded $227,500 for the beneficial conversion
feature, which amount was charged to interest expense.
NOTE 10 - EMPLOYMENT AGREEMENT
During 1999 the Company entered into a three one year employment
agreements with officers of the Company. The employment
agreements call for a total combined salary of $250,000 and
expires on December 31, 2000. The agreements can be revised for
successive one year terms.
NOTE 11 - OPERATING LEASE
The Company leases equipment and furniture from a company owned
by the Company's CEO, under an operating lease which expires on
March 31, 2001. Monthly payments are approximately $2,700 under
the operating lease agreement. The Company is liable to carry
property insurance and assumes the responsibility of maintaining
the leased equipment and furniture.
The Company's minimum furniture rental under these operating
leases is as follows:
Year ending December 31,
2000 $ 53,991
2001 8,016
Thereafter -
____________
$ 62,007
____________
17
<PAGE>
QCOMM INTERNATIONAL, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 12 - LOSS PER SHARE
The following data show the amounts used in computing loss per
share and the weighted average number of shares of common stock
outstanding for the periods presented:
For the
Year ended
December 31,
1999
______________
Loss from continuing operations
available to common shareholders
(numerator) $(1,195,175)
______________
Weighted average number of common
shares outstanding during the period
used in loss per share (denominator) 6,047,500
______________
At December 31, 1999, the Company had outstanding common stock
purchase warrants to purchase 49,445 shares of common stock and
common stock purchase options for 820,000 shares, which were not
used in the loss per share computation because their effect would
be anti-dilutive.
NOTE 13 - SUBSEQUENT EVENTS
Subsequent to December 31, 1999 the Company converted $500,000 of
the convertible debentures to common stock.
Subsequent to December 31, 1999 the Company acquired all of the
outstanding stock of Azore Acquisitions, Inc. in a stock for
stock exchange. The transaction has been accounted for as a
purchase. Azore was afterwards merged in to the Company. Azore
had no operations at the time of the acquisition.
Subsequent to December 31, 1999 the Company has issued 594,594
shares of common stock for cash at $.925 per share for total cash
of $550,000.
NOTE 14 - GOING CONCERN
The accompanying financial statements have been prepared in
conformity with generally accepted accounting principles, which
contemplate continuation of the Company as a going concern.
However, the Company has incurred losses since its inception has
current liabilities in excess of current assets and has not yet
been successful in establishing profitable operations. These
factors raised substantial doubt about the ability of the Company
to continue as a going concern. In this regard, management has
mitigated the doubt by raising additional funds through the sale
of 594,594 shares of common stock at $.925 per share, and the
conversion of $500,000 of convertible debt into stock. There is
no assurance that the Company will be successful in achieving
profitable operations. The financial statements do not include
any adjustments that might result from the outcome of these
uncertainties.
18
<PAGE>
QCOMM INTERNATIONAL, INC. AND SUBSIDIARY
FINANCIAL STATEMENTS AND REPORT OF
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
DECEMBER 31, 1998
CONTENTS
Page
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS 20
CONSOLIDATED FINANCIAL STATEMENTS
BALANCE SHEET 21
STATEMENT OF OPERATIONS 22
STATEMENT OF STOCKHOLDERS' DEFICIT 23
STATEMENT OF CASH FLOWS 24
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 25
19
<PAGE>
[Letterhead of Grant Thornton LLP]
REPORT OF INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANTS
The Directors and Stockholders of
QComm International, Inc. and Subsidiary
We have audited the accompanying consolidated balance sheet of
Qcomm International, Inc. and Subsidiary (the Company) as of
December 31, 1998, and the related consolidated statements of
operations, stockholders' deficit 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 the 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 consolidated financial
position of Qcomm International, Inc. and Subsidiary as of December 31, 1998,
and the consolidated results of their operations and their
consolidated cash flows for the year then ended, in conformity
with generally accepted accounting principles.
/s/ Grant Thornton LLP
Salt Lake City, Utah
September 30, 1999
<PAGE>
20
<PAGE>
QComm International, Inc. and Subsidiary
CONSOLIDATED BALANCE SHEET
December 31, 1998
ASSETS
CURRENT ASSETS
Cash $ 1,019
Trade accounts receivable, less allowance for
doubtful accounts of $39,048 (Note E) 40,377
Current maturities of notes receivable (Note C) 69,251
Related party receivable (Note D) 8,379
---------
Total current assets 119,026
NOTES RECEIVABLE, less current maturities (Note C) 89,810
PROPERTY AND EQUIPMENT, AT COST (Note E) 2,267
OTHER ASSETS 1,009
---------
$ 212,112
=========
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES
Current maturities of long-term obligation (Note F) $ 11,882
Accounts payable 755,300
Lines of credit (Note E) 182,588
Accrued liabilities 114,920
Related party obligation (Note D) 145,687
---------
Total current liabilities 1,210,377
LONG-TERM OBLIGATION, less current maturities (Note F) 30,984
COMMITMENTS AND CONTINGENCIES (Note J) --
STOCKHOLDERS' DEFICIT (Notes B and I)
Common stock, $0.001 par value; 50,000,000 shares
authorized, 5,724,059 shares issued and outstanding $ 5,724
Stock subscription receivable (Note H) 104,823
Additional paid-in capital 364,868
Accumulated deficit (1,504,664)
----------
Total stockholders' deficit (1,029,249)
----------
$ 212,112
==========
The accompanying notes are an integral part of this statement.
21
<PAGE>
QComm International, Inc. and Subsidiary
CONSOLIDATED STATEMENT OF OPERATIONS
Year ended December 31, 1998
Revenues
Telecommunications $ 2,839,848
Renewal fees 136,127
Other sales 189,487
----------
Net revenues 3,165,462
Cost of sales 2,057,970
----------
Gross profit 1,107,492
Operating expenses 2,793,926
----------
Loss from operations (1,686,434)
Other income including interest, net 231,584
----------
Loss before extraordinary item and income taxes (1,454,850)
Extraordinary item - gain on extinguishment of debt (Note H) 125,087
---------
Loss before income taxes (1,329,763)
Income taxes (Note L) --
---------
NET LOSS $(1,329,763)
===========
Loss per common share
Basic and diluted
Before extraordinary item $ (0.55)
Extraordinary item 0.05
-----------
Net loss $ (0.50)
===========
The accompanying notes are an integral part of this statement.
22
<PAGE>
QComm International, Inc. and Subsidiary
CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIT
Year ended December 31, 1998
<TABLE>
<CAPTION>
Number Stock Additional
of Common Subscription paid-in Accumulated
Shares stock Receivable capital deficit Total
<S> <C> <C> <C> <C> <C> <C>
Balance at
January 1,1998 10,987,724 $ 73,667 $ -- $ 11,604 $ (202,310) $ (117,039)
Reverse stock split
1 for 20 (10,438,337) -- -- -- -- --
Recapitalization of
company (Note B) 4,944,672 (68,173) -- 175,264 27,409 134,500
Stock subscription issued
in forgiveness of debt
(Note H) -- -- 104,823 -- -- 104,823
Issuance of common stock
for services rendered 34,000 34 -- 23,266 -- 23,300
Issuance of common stock
for cash 196,000 196 -- 151,542 -- 151,738
Issuance of warrants for
services rendered
(Note B) -- -- -- 3,192 -- 3,192
Net loss -- -- -- -- (1,329,763) (1,329,763)
--------- ------- --------- ------- --------- ---------
Balance at
December 31, 1998 5,724,059 $ 5,724 $ 104,823 $364,868 $(1,504,664) $(1,029,249)
========= ======= ========= ======== ========== ==========
</TABLE>
The accompanying notes are an integral part of this statement.
23
<PAGE>
QComm International, Inc. and Subsidiary
CONSOLIDATED STATEMENT OF CASH FLOWS
Year ended December 31, 1998
Increase (decrease) in cash
Cash flows from operating activities
Net loss $(1,329,763)
Adjustments to reconcile net loss to net cash
used in operating activities
Gain on extinguishment of debt 125,087
Depreciation 567
Provision for losses on receivables 794,128
Removal of liability (Note G) (257,005)
Stock issued for services 23,300
Changes in assets and liabilities
Trade accounts receivable (47,728)
Notes receivable (78,215)
Other assets 8,317
Accounts payable 190,851
Accrued liabilities 88,096
Related party obligations 154,953
----------
Total adjustments 1,002,351
----------
Net cash used in
operating activities (327,412)
----------
Net cash flows from investing activities -
Purchase of property and equipment (2,834)
----------
Cash flows from financing activities
Net decrease in lines of credit (2,397)
Warrants issued 3,192
Proceeds from issuance of common stock 286,238
Proceeds from issuance of long-term obligations 42,866
----------
Net cash provided by
financing activities 329,899
----------
Net decrease in cash (347)
Cash at beginning of year 1,366
----------
Cash at end of year $ 1,019
==========
(Continued)
24
<PAGE>
QComm International, Inc. and Subsidiary
CONSOLIDATED STATEMENT OF CASH FLOWS - CONTINUED
Year ended December 31, 1998
Supplemental disclosure of cash flow information
Cash paid during the year for
Interest $ 22,562
Income taxes --
Noncash investing and financing activities
The Company issued 34,000 shares of common stock to an employee
and a legal consultant for services received. The fair value of
the services was approximately $23,300.
Extraordinary gains, net of fees, were realized on the
forgiveness of ccounts payable to vendors in the amount of
approximately $125,087 (Note H).
The Company issued to a former officer a stock subscription to
purchase 209,646 shares of common stock at $0.50 per share for
forgiveness of debt of $104,823.
The Company issued a warrant to purchase 49,445 shares of common
stock at $1.00 per share for services received. The fair value of
the services was $3,192 (Note I).
The Company removed a disputed charges payable in the amount of
$257,005 (Note G).
The accompanying notes are an integral part of this statement.
25
<PAGE>
QComm International, Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary of the significant accounting policies consistently applied
in the preparation of the accompanying financial statements follows.
1. Organization and business activity
The Company was organized on February 7, 1986 as Four
Rivers Development, Inc. This name was changed on August 3, 1998
to Qcomm International Inc. in conjunction with the purchase of
three operating companies. (Note B).
The Company is headquartered in Orem, Utah but provides telecommunication
services to end users throughout the United States.
2. Principles of consolidation
The consolidated financial statements include the accounts
of QComm International, Inc. (the Company) and its wholly-owned
subsidiary, QComm Inc. All significant intercompany accounts and
transactions have been eliminated in consolidation.
3. Use of estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenues and
expenditures during the reporting period. Actual results could differ
from those estimates.
4. Cash and cash equivalents
The Company considers all highly liquid debt instruments with original
maturity dates of three months or less when purchased, to be cash
equivalents.
5. Revenue recognition
Revenue is recognized as services are performed. Financing through notes
receivable is serviced through independent collection agencies.
Revenue is recognized when the notes are signed and the related
service provided.
Ongoing revenue and expenses from telecommunication services are
passed through to customers, with the related portion due to the
Company recognized upon notification from the service provider.
6. Depreciation and amortization
Depreciation of property and equipment is provided on the straight-line
method over the estimated useful lives of the assets of five years.
26
<PAGE>
QComm International, Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
7. Fair value of financial instruments
The carrying value of the Company's accounts and notes receivable,
accounts payable, accrued liabilities, long-term obligations and lines of
credit approximate their fair values.
8. Income taxes
The Company utilizes the liability method of accounting for income taxes.
Under the liability method, deferred tax assets and liabilities
are determined based on differences between financial reporting
and tax bases of assets and liabilities and are measured using the
enacted tax rates and laws that will be in effect, when the
differences are expected to reverse.
An allowance against deferred tax assets is recorded, when it is more
likely than not that such tax benefits will not be realized.
9. Advertising costs
Advertising and marketing costs are expensed as incurred.
10. Net earnings (loss) per share
Basic earnings (loss) per common share (BEPS) is based on the weighted
average number of common shares outstanding during each period. Diluted
earnings (loss) per common share based on shares outstanding (computed as
under BEPS) and dilutive potential common shares. Potential common shares
included in the dilutive earnings (loss) per share calculation
include outstanding warrants to purchase common shares.
NOTE B - RECAPITALIZATION
On August 3, 1998 the Company changed its name from Four Rivers
Development, Inc. to QComm International, Inc. The Company also
effected a 1 for 20 reverse stock split of its common stock, thereby
reducing its shares outstanding from 10,987,724 to 549,387 shares. Also
on August 3, 1998, the Company acquired the following three companies:
* Teleconnect, Inc. (TCI), a Utah corporation, was acquired
through the issuance of 3,385,481 shares of theCompany's
common stock to the shareholders of TCI in
exchange for all of the outstanding common stock of TCI.
TCI was originally formed on January 28, 1993.
* Teleshare 900, Inc. (T900), a Utah corporation, was acquired
through the issuance of 994,037 shares of the Company's common
stock to the shareholders of T900 in exchange for all of the
outstanding common stock of T900. T900 was originally
formed on January 28, 1993.
27
<PAGE>
QComm International, Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998
NOTE B - RECAPITALIZATION - CONTINUED
* QComm International, Inc. (QCI), a Nevada corporation, was
acquired through the issuance of 566,154 shares of the
company's common stock to the shareholders of QCI for all of
the outstanding stock of QCI. QCI was originally formed on
December 5, 1997.
The three acquired companies were merged to form QCMERCO, Inc.,
which was subsequently renamed QComm, Inc., a wholly owned subsidiary
of QComm International, Inc. The combination of QComm, Inc. and
QComm International, Inc. was recorded as a recapitalization.
After the acquisitions there were 5,494,059 shares of common stock
outstanding with approximately 10 percent of those shares being held by
former stockholders of the Company.
NOTE C - NOTES RECEIVABLE
Notes receivable are principally from financing agreements with customers
for telecommunications services provided. Interest rates vary from 10 to
21 percent with 6 to 24 month terms. Delinquent notes receivable are
turned over for collection to collection agencies. The agencies charge a
collection fee, ranging from 10 percent to 50 percent on all amounts
collected. Uncollectible accounts are written-off against the allowance
account. Adjustments are charged to bad debt expense. Notes receivable at
December 31, 1998, consist of the following:
Notes serviced by collection agencies $561,318
Notes serviced internally 54,238
--------
615,556
Less allowance for uncollectible accounts (456,495)
--------
Net notes receivable 159,061
Less current maturities 69,251
--------
$ 89,810
=========
A summary of the changes in the allowance for bad debts is
as follows:
Balance, beginning of year $366,000
Provisions for losses 679,988
Write-offs (589,493)
--------
Balance, end of year $456,495
========
28
<PAGE>
QComm International, Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998
NOTE D - RELATED PARTY TRANSACTIONS
The Company leases office furniture and equipment from a related party
(Note J). For the year ended December 31, 1998, the Company has accrued
approximately $77,000 in lease expenses due to the related party.
The Company has a 10 percent note due on demand to a related party in the
amount of approximately $69,500 at December 31, 1998.
During the current year, the Company wrote off an uncollectible
account receivable from a related party in the amount of
approximately $55,000.
The Company has a receivable from a related party in the amount of
$8,379. The receivable is due on demand and accrues no interest.
The Company agreed to issue 209,646 shares of restricted common stock
to a related party in payment of debt obligations owed by the
Company in the amount of $104,823. (Note H).
NOTE E - LINES OF CREDIT
The Company has a $150,000 line of credit with a bank, secured by
equipment and a personal guarantee from an officer of the Company. The
draw on the line was $147,935 at December 31, 1998. The interest rate is
prime plus 2 percent, plus an additional 5 percent default rate due to
noncompliance with the line of credit covenants (14.75 percent at December
31, 1998) with interest payments due monthly, and the principal due on
demand.
The Company also has a $35,000 line of credit with a bank, secured by
equipment, accounts receivable and a personal guarantee from an officer of
the Company. The draw on the credit line was $34,653 at December 31, 1998.
The interest rate is prime plus 2 percent (9.75 percent at December 31,
1998) with interest payments due monthly, and the principal due on demand.
The lines of credit agreements contain various restrictive covenants. At
various times during the year and as of December 31, 1998, the Company was
not in compliance with certain covenants and as a result, the bank has
imposed a default interest rate on one of the lines of credit.
NOTE F - LONG-TERM OBLIGATION
During 1999, the Company settled with a prior landlord certain disputed
charges relating to a building lease during the year ended December 31,
1998. As a result of the settlement, the Company recorded a note payable
to the landlord in the amount of $42,866. Payments on the note are to
commence in October, 1999 with a payment of $5,685 and additional monthly
payments of $3,083, expiring in November 2000. The note requires no
interest payments as long as the Company remains current on the principal
payments.
29
<PAGE>
QComm International, Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998
NOTE G - DISPUTED CHARGES PAYABLE
During 1997, the Company was billed for telecommunications charges from a
service provider. The Company recorded $257,005 as expense and recorded
the amount as a payable. Subsequent to 1997, the Company further
investigated and disputed the charges. Based upon the Company's further
detailed review it does not believe that the amount is properly payable
and has reversed the payable.
NOTE H - EXTINGUISHMENT OF DEBT
The Company has negotiated reductions with certain vendors relating to
amounts due by the Company. The reductions amount to $125,087.
As part of this settlement process, the Company incurred approximately
$34,000 in settlement fees. The Company has recorded a net gain from
extinguishment of debt in the amount of $125,087 in the consolidated
statement of operations for the period ended December 31, 1998.
The Company has converted $104,823 of debt obligations incurred during the
year ended December 31, 1998, and recorded a stock subscription receivable
for 209,646 shares of common stock as of December 31, 1998.
NOTE I - WARRANTS
The Company's board of directors has the authority to grant stock warrants
to employees, officers and certain non-employees. These warrants are
considered nonqualified for income tax purposes. As of December 31, 1998,
the Company has granted a warrant to purchase 49,445 shares of the
Company's common stock at $1.00 per share. The warrant vests immediately
upon grant and has a weighted-average remaining contractual life of 4.5
years.
NOTE J - COMMITMENTS AND CONTINGENCIES
The Company leases equipment and furniture from a company owned by the
Company's CEO, under an operating lease which expires on March 31, 2001.
Monthly payments are approximately $2,700 under the operating lease
agreement. The Company is liable to carry property insurance and assume
the responsibility of maintaining the leased equipment and furniture.
In addition to the above lease agreement, the Company leases office
facilities under an operating lease which expires August 31, 2000. Monthly
payments are approximately $2,450 under the operating lease agreement. The
Company is liable to carry property insurance.
30
<PAGE>
QComm International, Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998
NOTE J - COMMITMENTS AND CONTINGENCIES - CONTINUED
The Company's minimum future rental under these operating leases is as
follows:
Year ending December 31,
------------------------
1999 $64,951
2000 53,991
2001 8,016
Thereafter --
-------
$126,958
=========
Total rent expense for the year ended December 31, 1998 was
approximately $245,000.
NOTE K - LOSS PER COMMON SHARE
The following data show the shares used in computing loss per common share
including dilutive potential common stock.
Year ended
December 31,
1998
------------
Common shares outstanding during the
entire period 549,386
Weighted-average common shares issued
during the period 2,117,749
------------
Weighted-average number of common
shares used in basic EPS 2,667,135
Dilutive effect of warrants --
-----------
Weighted-average number of common
shares and dilutive potential common
stock used in diluted EPS 2,667,135
============
Shares from the exercise of the outstanding warrant issuable were not
included in the computation of diluted loss per share because their
inclusion would have been antidilutive for the year ended December 31,
1998.
31
<PAGE>
QComm International, Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998
NOTE L - INCOME TAXES
The income tax expense (benefit) reconciled to the tax (benefit) computed
at the statutory federal rate of 34 percent is as follows:
Income tax benefit at statutory rate $ (482,927)
Income tax attributed to the pre-merger
S-Corporations income (77,371)
State income tax benefit net of federal tax effect (51,313)
Change in valuation allowance 594,558
Other, net (16,744)
Tax expense allocated to extraordinary item 33,797
----------
Income tax expense $ --
==========
Deferred income tax assets and liabilities are as follows:
Deferred tax assets
Benefit of net operating loss carryforwards $ 404,480
Allowance for doubtful accounts 14,565
Allowance for notes receivable 184,838
----------
603,883
Less valuation allowance (603,883)
----------
Net deferred tax asset (liability) $ --
==========
From January 1 to August 3, 1998 taxable income of $227,563 was generated
by the pre-merger S-Corporations. This income was subsequently
passed-through to the prior S-Corporation shareholders. Taxes relating to
this pre-merger income are the responsibility of the S- Corporation
shareholders. There were no deferred tax assets or income tax benefits
recorded in the financial statements for net deductible temporary
differences or net operating loss carryforwards because the likelihood of
realization of the related tax benefits cannot be established.
Accordingly, a valuation allowance has been recorded to reduce the net
deferred tax asset to zero and consequently, there is no income tax
provision or benefit for the period presented. The increase in the
valuation allowance was $594,558 for the year ended December 31, 1998.
As of December 31, 1998, the Company had net operating loss carryforwards
for tax reporting purposes of approximately $1,084,398 expiring in various
years through 2018. Utilization of approximately $25,000 of the total net
operating loss is dependent on the profitable operation of the
subsidiaries in the future under the separate return limitation rules and
limitations on the carryforward of net operating losses after a change in
ownership.
32
<PAGE>
QComm International, Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998
NOTE M SUBSEQUENT EVENTS
During 1998, the Company initiated a private placement memorandum in which
the Company offered 1,135,000 of common shares at $0.75 per share on a
"Best Efforts" basis. During 1999, the Company has received approximately
$108,250 on the sale of 144,326 shares. The common shares may not be
transferred or resold except as permitted under the Securities Act of 1933
and applicable state laws.
In 1999, the Company has also received $650,000 from an investor upon the
issuance of a convertible debenture. The debenture is convertible into
common stock of the Company through May 12, 2004 and accrues interest at
the rate of 2 percent per annum. The conversion rate for the debenture
shall be the lesser of $1.00 or 65 percent of the average closing bid
price for the shares of the Company's common stock for the five trading
days immediately preceding the conversion date. In conjunction with the
issuance of the debenture, the investor also received warrants to purchase
125,000 shares of common stock at an exercise price of $0.01 per share.
The warrants expire on May 12, 2004.
33
<PAGE>
QCOMM INTERNATIONAL, INC.
AND
AZORE ACQUISITION CORPORATION
PROFORMA CONDENSED COMBINED FINANCIAL STATEMENTS
[Unaudited]
The following unaudited proforma condensed combined balance sheet
aggregates the balance sheet of QCOMM International, Inc. (a Utah
corporation) ("PARENT") as of December 31, 1999 and the balance
sheet of AZORE Acquisition Corporation (a Nevada corporation)
("SUBSIDIARY") as of December 31, 1999, accounting for the
transaction as an acquisition of SUBSIDIARY with the issuance of
shares of common stock of PARENT for all the issued and
outstanding shares of SUBSIDIARY and the subsequent merger of
SUBSIDIARY into PARENT, and using the assumptions described in
the following notes, giving effect to the transactions, as if the
transactions had occurred as of the end of the period. The
transactions were not completed as of December 31, 1999.
The following unaudited proforma condensed combined statement of
operations combine the results of operations of PARENT for the
year ended December 31, 1999 and the results of operations of
SUBSIDIARY for the period from its date of inception on December
13, 1999 to December 31, 1999 as if the transaction had occurred
as of the beginning of the period.
The proforma condensed combined financial statements should be
read in conjunction with the separate financial statements and
related notes thereto of PARENT and SUBSIDIARY. These proforma
financial statements are not necessarily indicative of the
combined financial position, had the acquisition occurred on the
date indicated above, or the combined results of operations which
might have existed for the periods indicated or the results of
operations as they may be in the future.
34
<PAGE>
QCOMM INTERNATIONAL, INC.
AND
AZORE ACQUISITION CORPORATION
PROFORMA CONDENSED COMBINED BALANCE SHEET
DECEMBER 31, 1999
ASSETS
[Unaudited]
QCOMM AZORE
International, Acquisition
Inc. Corp.
December 31, December 31, Proforma
1999 1999 Increase Proforma
[PARENT] [SUBSIDIARY] (Decrease) Combined
_____________________________________________________
ASSETS:
Cash $ 42,488 $ 2,000 $ - $ 44,488
Accounts receivable 92,673 - 92,673
Property and Equipment, net 58,648 - - 58,648
Other Assets 75,113 - - 75,113
[B] 50,000
[C] (2,000)
Goodwill - - [A]176,000 224,000
_________________________________________________
$ 268,922 $ 2,000 $224,000 $ 494,922
__________________________________________________
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
LIABILITIES:
Accounts payable and
Accrued liabilities $ 928,067 $ 561 [B]$ 50,000 $ 978,628
Convertible notes payable 143,920 - - 143,920
Advances payable 50,000 - - 50,000
Long-Term Liablilities 650,000 - - 650,000
__________________________________________________
Total Liabilities 1,771,987 561 50,000 1,822,548
__________________________________________________
STOCKHOLDERS' EQUITY (DEFICIT):
Preferred stock - - - -
[C] (500)
Common stock 6,630 500 [A] 100 6,730
[D] (561)
Capital in excess of [C] (1,500)
Par Value 1,190,144 1,500 [A] 175,900 1,365,483
Retained deficit (2,699,839) (561) [D] 561 (2,699,839)
__________________________________________________
Total Stockholders'
Equity (Deficit) (1,503,065) 1,439 174,000 (1,327,626)
__________________________________________________
$ 268,922 $ 2,000 $ 224,000 $ 494,922
___________________________________________________
See Notes To Unaudited Proforma Condensed Financial Statements.
35
<PAGE>
QCOMM INTERNATIONAL, INC.
AND
AZORE ACQUISITIONS CORPORATION
PROFORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
[Unaudited]
QCOMM AZORE.
International Acquisition
Inc. Corp.
For the year From December 13,
Ended December 1999 through
31, 1999 December 31, 1999 Increase Proforma
[PARENT] [SUBSIDIARY] (Decrease) Combined
____________________________________________________
REVENUE $1,094,427 $ - $ - $1,094,427
COST OF GOODS SOLD 964,467 - - 964,467
____________________________________________________
Gross Profit 129,960 - - 129,960
____________________________________________________
EXPENSES:
General and administrative 1,662,318 561 - 1,662,879
____________________________________________________
(LOSS) FROM OPERATIONS (1,532,358) (561) - (1,532,919)
___________________________________________________
OTHER INCOME (EXPENSE) 337,183 - - 337,183
___________________________________________________
(LOSS) FROM OPERATIONS
BEFORE PROVISION FOR TAXES (1,195,175) (561) - (1,195,736)
PROVISION FOR INCOME TAXES - - - -
__________________________________________________
NET (LOSS) $(1,195,175) $ (561) $ - $(1,195,736)
__________________________________________________
NET (LOSS) PER COMMON SHARE $ (.18)
___________
See Notes To Unaudited Proforma Condensed Financial Statements.
36
<PAGE>
QCOMM INTERNATIONAL, INC.
AND
AZORE ACQUISITION CORPORATION
NOTES TO PROFORMA CONDENSED COMBINED FINANCIAL STATEMENTS
[Unaudited]
NOTE 1 - QCOMM INTERNATIONAL, INC.
QCOMM International, Inc. ["PARENT"], a Utah corporation,
was incorporated on December 5, 1997. The PARENT has been
engaged in providing telecommunication services.
NOTE 2 - AZORE ACQUISITION CORPORATION
AZORE Acquisition Corporation ["SUBSIDIARY"], a Nevada
corporation, was incorporated on December 13, 1999. The
SUBSIDIARY was inactive at the time of acquisition and was
seeking potential business opportunities.
NOTE 3 - PROFORMA ADJUSTMENTS
During March, 2000, PARENT acquired 100% of SUBSIDIARY
through the issuance of 100,000 shares of restricted common
stock in exchange for all the issued and outstanding common
stock of SUBSIDIARY. The transaction resulted in SUBSIDIARY
becoming a wholly owned subsidiary of PARENT. After
reflecting the acquisition there would have been 6,729,675
shares of common stock outstanding on a proforma basis.
Immediately following the acquisition, PARENT and SUBSIDIARY
entered into a Plan of Merger pursuant to which SUBSIDIARY
was merged with and into PARENT. PARENT was the surviving
corporation.
Proforma adjustments on the attached financial statements
include the following:
[A]To record the acquisition of Subsidiary by Parent
through the issuance of 100,000 shares of common stock.
The acquisition was valued at $176,000.
[B]The estimated costs incurred in completing the
acquisition and merger have been capitalized as
acquisition costs on the books of the Parent. These
estimated costs ($50,000) consist primarily of legal
fees.
[C]To eliminate the common stock and paid in capital of the
Subsidiary at the date of acquisition and to reflect the
dissolution of Subsidiary as a result of the merger.
[D]To eliminate the retained deficit of Subsidiary at the
date of the acquisition to reflect the purchase for
accounting purposes.
37
<PAGE>
QCOMM INTERNATIONAL, INC.
AND
AZORE ACQUISITION CORPORATION
NOTES TO PROFORMA CONDENSED COMBINED FINANCIAL STATEMENTS
[Unaudited]
NOTE 4 - PROFORMA (LOSS) PER SHARE
The proforma (loss) per share is computed based on the
number of shares outstanding, after adjustment for shares
issued in the acquisition, as though all shares issued in
the acquisition had been outstanding from the beginning of
the periods presented.
38
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act
of 1934, as amended, the Registrant has duly caused this report
to be signed on its behalf by the undersigned hereunto duly
authorized.
Q Comm International, Inc.
DATED: April 19, 2000 By: /s/ Paul Hickey
Chairman of the Board, CEO
39
<PAGE>
