SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
------------------------------
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of report (Date of earliest event reported) February 26, 1999
CARNEGIE INTERNATIONAL CORPORATION
(Exact name of Registrant as specified in Charter)
Colorado
(State or other Jurisdiction
of incorporation)
000-08918
(Commission File Number)
13-3692114
(IRS Employer Identification
No.)
Suite 1001, Executive Plaza #3, 11350 McCormick Road, Hunt Valley, Md. 21030
(Address of Principal Executive Offices/Zip Code)
Registrant's telephone number, including area code: (410) 785-7400
Not Applicable
(Former Address)
<PAGE>
INFORMATION TO BE IN THE REPORT
Item 2. Acquisition or Disposition of Assets.
As previously reported in the Form 10-KSB filed by the Company with the
Securities and Exchange Commission, the Company acquired on February 26, 1999,
all of the issued and outstanding stock of Paramount International
Telecommunications, Inc., a Nevada corporation ("Paramount"). A copy of the
Acquisition Agreement was filed as Exhibit 10.24 to the Company's Form 10-KSB.
Paramount is an outside service provider to the hospitality as well as to
the health care and pay-telephone industries in the United States, Mexico and
Canada. Paramount markets call accounting systems similar to a PBX system, which
with respect to hotels operate as the primary system to provide
telephone-related services, including credit card calls and third party collect
calls to their guests, as well as to produce the information necessary to bill
guests for the telephone calls and to properly manage telecommunication services
in the hotel.
The consideration to the Paramount shareholders in the transaction was
6,950,000 shares of the Company's common stock, no par value. The consideration
was determined by arm's length negotiation taking into consideration Paramount's
future earnings potential.
The shareholders of Paramount were David M. Moody, Michael Eberle, Kay
Eberle and David Paton. No material relationship existed between any of the
Paramount shareholders and the Company or any of its affiliates, any director or
officer of the Company, or any associate of any such director or officer.
At the time of closing of the transaction, each of the Paramount
shareholders entered into five-year employment agreements with Paramount. (The
agreements are identical except for offices in Paramount to be held by each of
the Paramount shareholders. Michael Eberle's agreement was filed as Exhibit
10.25 to the Company's Form 10-KSB as an example of the agreements.) Each
agreement provides for a $130,000 base salary and bonus shares of the Company's
common stock based on increases in sales revenues and maintaining profit margins
by Paramount in the two-year period April 1, 1999 to March 31, 2001. Each of the
Paramount shareholders received a signing bonus with respect to the employment
agreements of cash in the amount of $375,000 and 12,500 restricted shares of
Carnegie common stock. The cash portion of the signing bonuses, in the aggregate
amount of $1,500,000, was funded by internally generated funds and by a loan in
the amount of $400,000 from Olympia Partners, New York, New York, a shareholder
of the Company. The loan has been repaid in full.
1
<PAGE>
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits.
(a) Financial Statements of Business Acquired.
PARAMOUNT INTERNATIONAL TELECOMMUNICATIONS, INC.
PAGE
INDEPENDENT AUDITOR'S REPORT 1
FINANCIAL STATEMENTS
Balance Sheets 2-3
Statements of Operations 4
Statements of Stockholders' Deficiency 5
Statements of Cash Flows 6-7
Notes of Financial Statements 8-17
(b) Pro Forma Financial Information.
Consolidated Pro Forma Unaudited Balance Sheet
as of December 31, 1998 18
Consolidated Pro Forma Unaudited Statement of Operations
as of December 31, 1998 19
Notes to Condensed Pro Forma Unaudited Financial Statements
as of December 31, 1998 20
(c) Exhibits.
2.1 Acquisition Agreement between the Company and Paramount
International Telecommunications, Inc. (filed as Exhibit 10.24
to the Company's Form 10-KSB, filed with the Commission on
April 27, 1999 and incorporated by reference herein.)
2.2 Employment Agreement between Paramount International
Telecommunications, Inc. and Michael Eberle (filed as Exhibit
10.25 to the Company's Form 10-KSB, filed with the Commission
on April 27, 1999 and incorporated by reference herein.)
2
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
CARNEGIE INTERNATIONAL CORPORATION
Date: May 24, 1999 By: /s/ Lowell Farkas
--------------------------------
Lowell Farkas, President
C77818a.108Y:2
3
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description of Exhibit
2.1 Acquisition Agreement between the Company and Paramount
International Telecommunications, Inc. (filed as Exhibit 10.24
to the Company's Form 10-KSB, filed with the Commission on
April 27, 1999 and incorporated by reference herein.)
2.2 Employment Agreement between Paramount International
Telecommunications, Inc. and Michael Eberle (filed as Exhibit
10.25 to the Company's Form 10-KSB, filed with the Commission
on April 27, 1999 and incorporated by reference herein.)
4
<PAGE>
PARAMOUNT INTERNATIONAL TELECOMMUNICATIONS, INC.
AND SUBSIDIARY
FINANCIAL STATEMENTS
FOR THE YEARS ENDED
DECEMBER 31, 1998 AND 1997
<PAGE>
PARAMOUNT INTERNATIONAL TELECOMMUNICATIONS, INC. AND SUBSIDIARY
DECEMBER 31, 1998 AND 1997
CONTENTS
INDEPENDENT AUDITORS' REPORT.......................................1
FINANCIAL STATEMENTS:
Balance Sheets........................................2 - 3
Statements of Operations..................................4
Statements of Stockholders' Deficiency....................5
Statements of Cash Flows..............................6 - 7
Notes to Financial Statements.........................8- 17
<PAGE>
MERDINGER, FRUCHTER, ROSEN & CORSO, P.C.
CERTIFIED PUBLIC ACCOUNTANTS
1801 CENTURY PARK EAST
SUITE 1132
LOS ANGELES, CALIFORNIA 90067
TEL: (310) 282-9131
FAX: (310) 282-9130
New York Office
888 Seventh Avenue
New York, New York 10106
Tel: (212) 757-8400
Fax: (212) 757-6124
INDEPENDENT AUDITORS' REPORT
TO THE STOCKHOLDERS'
PARAMOUNT INTERNATIONAL TELECOMMUNICATIONS, INC.
We have audited the accompanying balance sheets of Paramount International
Telecommunications, Inc. and Subsidiary as of December 31, 1998 and 1997, and
the related statements of operations, stockholders' deficiency and cash flows
for the years 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 audits. These financial statements have been
reissued, see Notes 8 and 12.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above presently fairly, in
all material respects, the financial position of Paramount International
Telecommunications, Inc. and Subsidiary as of December 31, 1998 and 1997, and
the results of its operations and its cash flows for the years then ended, in
conformity with generally accepted accounting principles.
/s/ Merdinger, Fruchter, Rosen & Corso, P.C.
MERDINGER, FRUCHTER, ROSEN & CORSO, P.C.
Certified Public Accountants
Los Angeles, California
February 2, 1999, except for
Notes 8 and 12 which are as
of May 19, 1999
1
<PAGE>
PARAMOUNT INTERNATIONAL TELECOMMUNICATIONS, INC. AND SUBSIDIARY
BALANCE SHEETS
DECEMBER 31,
<TABLE>
<CAPTION>
1998 1997
----------------- ------------------
ASSETS
CURRENT ASSETS
<S> <C> <C>
Cash $ 44,859 $ 32,124
Accounts Receivable 846,912 341,437
Receivable Sales-Type Lease - Current Portion 72,000 -
Prepaid Expenses 4,515 -
----------------- ------------------
Total Current Assets 968,286 373,561
RECEIVABLES SALES-TYPE LEASE-
Less Current Portion 96,000 -
EQUIPMENT AND FURNITURE, net 247,186 40,135
EXCESS COST OVER FAIR VALUE OF NET
ASSETS ACQUIRED, net 708,724 -
OTHER ASSETS 15,750 -
----------------- ------------------
TOTAL ASSETS $ 2,035,946 $ 413,696
================= ==================
The accompanying notes are an integral part of the financing statements.
</TABLE>
- 2 -
MERDINGER, FRUCHTER, ROSEN & CORSO, P.C.
CERTIFIED PUBLIC ACCOUNTS
<PAGE>
PARAMOUNT INTERNATIONAL TELECOMMUNICATIONS, INC. AND SUBSIDIARY
BALANCE SHEETS
DECEMBER 31,
<TABLE>
<CAPTION>
1998 1997
----------------- ------------------
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
CURRENT LIABILITIES
<S> <C> <C>
Accounts Payable and Accrued Expenses $ 827,553 $ 573,791
Notes Payable - Current Portion 204,790 -
Capital Lease Obligations - Current Portion 36,038 -
Note Payable and Accrued Interest to Stockholder 1,224,622 222,946
Deferred Revenue - Current Portion 38,000 -
----------------- ------------------
Total Current Liabilities 2,331,003 796,737
NOTES PAYABLE, Less Current Portion 105,301 -
CAPITAL LEASE OBLIGATION, Less Current Portion 39,936 -
DEFERRED REVENUE, Less Current Portion 21,962 -
----------------- ------------------
Total Liabilities 2,498,202 796,737
----------------- ------------------
MINORITY INTEREST - -
COMMITMENTS AND CONTINGENCIES (Note 7) - -
STOCKHOLDERS' DEFICIENCY
Common Stock, no par value, 25,000 shares
authorized, 2,000 shares issued and outstanding 2,000 252,000
Stock Subscription Receivable ( 980) ( 980)
Accumulated Deficit ( 463,276) ( 634,061)
---------------- ----------------
Total Stockholders' Deficiency ( 462,256) ( 383,041)
---------------- ----------------
TOTAL LIABILITIES AND
STOCKHOLDERS' DEFICIENCY $2,035,946 $ 413,696
========== ==================
The accompanying notes are an integral part of the financial statements.
</TABLE>
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MERDINGER, FRUCHTER, ROSEN & CORSO, P.C.
CERTIFIED PUBLIC ACCOUNTS
<PAGE>
PARAMOUNT INTERNATIONAL TELECOMMUNICATIONS, INC. AND SUBSIDIARY
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
1998 1997
----------------- ------------------
<S> <C> <C>
SALES $ 11,314,649 $ 792,878
COST OF GOODS SOLD 9,667,906 558,211
----------------- ------------------
GROSS PROFIT 1,646,743 234,667
SELLING, GENERAL AND ADMINISTRATIVE 981,314 131,812
----------------- ------------------
INCOME FROM OPERATIONS 665,429 102,855
----------------- ------------------
OTHER INCOME (EXPENSE)
Other Income - 4,928
Interest Expense ( 18,492) ( 85,453)
---------------- -----------------
Total Other Income (Expense) ( 18,492) ( 80,525)
---------------- -----------------
INCOME BEFORE TAXES 646,937 22,330
TAXES - -
----------------- ------------------
NET INCOME $ 646,937 $ 22,330
================= ==================
The accompanying notes are an integral part of the financial statements.
</TABLE>
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MERDINGER, FRUCHTER, ROSEN & CORSO, P.C.
CERTIFIED PUBLIC ACCOUNTS
<PAGE>
PARAMOUNT INTERNATIONAL TELECOMMUNICATIONS, INC. AND SUBSIDIARY
STATEMENTS OF STOCKHOLDERS' DEFICIENCY
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
Stock
Common Stock Subscription Accumulated
Shares Amount Receivable Deficit Total
<S> <C> <C> <C> <C> <C>
Balance, January 1, 1996 2,000 $ 252,000 $ ( 980) $( 423,417) $( 172,397)
Distributions to Stockholder - - - ( 232,974) ( 232,974)
Net Income - - - 22,330 22,330
----------- ----------- ----------- ------------- ------------
Balance, December 31, 1997 2,000 252,000 ( 980) ( 634,061) ( 383,041)
Return of Capital to Equalize
Stockholder Accounts - ( 250,000) - - ( 250,000)
Distributions to Stockholder - - - ( 476,152) ( 476,152)
Net Income - - - 646,937 646,937
----------- ----------- ----------- ------------- ------------
Balance, December 31, 1998 2,000 $ 2,000 $( 980) $( 463,296) $( 462,276)
=========== =========== =========== ============= ============
The accompanying notes are an integral part of the financial statements.
</TABLE>
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MERDINGER, FRUCHTER, ROSEN & CORSO, P.C.
CERTIFIED PUBLIC ACCOUNTS
<PAGE>
PARAMOUNT INTERNATIONAL TELECOMMUNICATIONS, INC. AND SUBSIDIARY
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
1998 1997
----------------- ------------------
CASH FLOWS FROM OPERATION ACTIVITIES:
<S> <C> <C>
Net Income $ 646,937 $ 22,330
Adjustments to Reconcile Net Income to Cash
Provided by Operating Activities:
Sales - Type Lease ( 122,000) -
Depreciation and Amortization Expense 94,753 7,282
(Increase) Decrease in:
Accounts Receivable ( 451,283) ( 341,437)
Prepaid Expenses ( 4,515) -
Other Assets ( 15,750) -
Increase (Decrease) in:
Accounts Payable and Accrued Expenses 112,796 405,152
Deferred Revenue ( 34,038) -
---------------- ------------------
Net Cash Provided by Operating Activities 226,900 93,327
----------------- ------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Cash Collected from Receivable Sales-Type Lease 48,000 -
Purchase of Equipment and Furniture ( 129,303) ( 19,282)
Acquisition of Call Data Clear, Inc., net of cash acquired ( 197,259) -
-------------- ------------------
Net Cash Used in Investing Activities ( 278,562) ( 19,282)
------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from Note Payable to Stockholder 467,143 105,152
Payments for Note Payable to Stockholder
Proceeds from Notes Payable 123,000 -
Repayments of Notes Payable ( 23,812) -
Net Repayments for Line of Credit ( 12,435) -
Payments for Capital Lease Obligations ( 13,347) -
Distribution to Stockholders ( 476,152) ( 149,278)
---------------- -----------------
Net Cash Provided By (Used In) Financing Activities 64,397 ( 44,126)
----------------- -----------------
NET INCREASE IN CASH 12,735 29,919
CASH AND CASH EQUIVALENTS -
BEGINNING OF PERIOD 32,124 2,205
----------------- ------------------
CASH AND CASH EQUIVALENTS -
END OF PERIOD $ 44,859 $ 32,124
================ =================
The accompanying notes are an integral part of the financial statements.
</TABLE>
- 6 -
MERDINGER, FRUCHTER, ROSEN & CORSO, P.C.
CERTIFIED PUBLIC ACCOUNTS
<PAGE>
PARAMOUNT INTERNATIONAL TELECOMMUNICATIONS, INC. AND SUBSIDIARY
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
During the years ended December 31, 1998 and 1997, the Company paid $13,172.88
and $0 for interest, respectively, and no income taxes.
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING
TRANSACTIONS:
During the year ended December 31, 1998, the Company sold equipment under a
sales-type lease for $210,000.
The accompanying notes are an integral part of the financial statements.
- 7 -
MERDINGER, FRUCHTER, ROSEN & CORSO, P.C.
CERTIFIED PUBLIC ACCOUNTS
<PAGE>
PARAMOUNT INTERNATIONAL TELECOMMUNICATIONS, INC. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
NOTE 1 - THE ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Organization
Paramount International Telecommunications, Inc. (the
"Company"), a Nevada S Corporation, formed in 1996, provides
telecommunication services. The Company provides its services
to the lodging and pay-telephone industries in the United
States, Canada and South America. The Company markets
third-party manufactured PBX systems. Such products represent
the primary systems used by hotels to provide
telephone-related services to their guests, as well as the
information necessary to bill guests for telephone calls and
properly manage the telecommunications environment at the
hotel. The Company bills and collects for the hotels, through
a third-party service, the cost of calls initiated by the
hotel guest. Also, the Company provides live-operator
assistance and billing services for long-distance collect
calls for the pay-telephone industry (See Note 8 -
Stockholders' Equity for capital structure of the Company).
Principles of Consolidation
The December 31, 1998 balances include the accounts of the
Company and its majority-owned subsidiary Call Data Clearing,
Inc. ("CDC") from the date of acquisition (see Note 11) July
30, 1998, after elimination of intercompany accounts and
transactions.
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 amounts
reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
Concentration of Credit Risk
Financial instruments, which potentially subject the Company
to concentrations of credit risk, consist of cash, trade
receivables and notes receivable. The Company places its cash
with high quality financial institutions and at times may
exceed the FDIC $100,000 insurance limit. The Company provides
its
- 8 -
MERDINGER, FRUCHTER, ROSEN & CORSO, P.C.
CERTIFIED PUBLIC ACCOUNTS
<PAGE>
PARAMOUNT INTERNATIONAL TELECOMMUNICATIONS, INC. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
NOTE 1 - THE ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
(continued)
services in the United States, Canadian and South American
lodging industry and is thus dependent upon the conditions of
the hospitality economic sectors of these countries. Exposure
to losses on receivables is principally dependent on each
customer's financial condition. The Company monitors its
exposure for credit losses and maintains allowances for
anticipated losses.
Impairment of long-lived Assets
In accordance with Statement of Financial Accounting Standard
("SFAS") No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed of",
long-lived assets are evaluated for impairment whenever events
or changes in circumstances indicate that the carrying amounts
of such assets may not be recoverable. Impairment losses would
be recognized if the carrying amounts of the assets exceed the
fair value of the assets.
Inventories
Inventories consist of PBX systems and peripherals that are
held for resale and charged to cost of goods sold upon
installation, or for rental charged to equipment when
installed and depreciated over three years. Inventories are
stated at the lower of cost or market, with cost determined on
a first-in, first-out basis.
Equipment and Furniture
The Company capitalizes the cost of all significant equipment
and furniture additions including equipment purchased by the
Company and installed at customer locations under rental
agreements. Depreciation is computed over the estimated useful
life of the asset or the terms of the lease for leasehold
improvements, whichever is shorter, on a straight-line basis,
as follows:
Telecommunication 3 years
Computers 5 years
Furniture and Fixtures 5 - 7 years
Leasehold Improvements 10 years
- 9 -
MERDINGER, FRUCHTER, ROSEN & CORSO, P.C.
CERTIFIED PUBLIC ACCOUNTS
<PAGE>
PARAMOUNT INTERNATIONAL TELECOMMUNICATIONS, INC. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
NOTE 1 - THE ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
(continued)
Sales-Type Leases
A portion of the Company's revenue for the year ended December
31, 1998 has been generated using a sales-type lease. The
Company sold equipment to a customer under a sales-type lease
to be paid over a three-year period. Because the present value
(computed at the rate implicit in the lease) of the minimum
payments under this sales-type lease equals or exceeds 90
percent of the fair market value of the equipment and/or the
length of the lease exceeds 75 percent of the estimated
economic life of the equipment, the Company recognized the net
effect of this transaction as a sale as required by generally
accepted accounting principles.
Minority Interest
The December 31, 1998 financial statements do not reflect a
minority interest liability as CDC, on a stand-alone basis has
a stockholders' deficiency, and the consolidated statement of
operations for the year ended December 31, 1998 does not
reflect a minority interest's share of CDC's losses, as the
related accrual would result in the Company's recordation of a
minority interest receivable.
Revenue Recognition
The Company bills and collects, through a third party service,
the cost of calls initiated by the hotel guests. The Company
recognizes revenue each month based on the gross proceeds to
be collected which are net of contractual allowances for
uncollectible fees charged by the third-party billing agency.
Product sales are recognized upon delivery of product to the
customer.
Income Taxes
The Company accounts or income taxes in accordance with SFAS
No. 109, "Accounting for Income Taxes". Deferred taxes are
provided on a liability
- 10 -
MERDINGER, FRUCHTER, ROSEN & CORSO, P.C.
CERTIFIED PUBLIC ACCOUNTS
<PAGE>
PARAMOUNT INTERNATIONAL TELECOMMUNICATIONS, INC. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
NOTE 1 - THE ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
(continued)
method whereby deferred tax assets are recognized for
deductible temporary differences, and deferred tax liabilities
are recognized for taxable temporary differences. Temporary
differences are the differences between the reported of assets
and liabilities and their tax bases. Deferred tax assets are
reduced by a valuation allowance when, in the opinion of
management, it is more likely than not that some portion or
all of the deferred tax assets will not be realized. Deferred
tax assets and liabilities are adjusted for the effects of
changes in tax laws and rates on the date of enactment.
The Company has elected to be taxed under the provisions of
Sub Chapter-S of the Internal Revenue Code. Under the
provisions, the Company does not pay federal corporate income
taxes, but is subject to a 1.5% California franchise tax.
NOTE 2 - RECEIVABLE SALES-TYPE LEASE
In May 1998, the Company sold equipment to a customer under a
sales-type lease to be paid over a three year period. Future
minimum lease payments under the lease are as follows:
Year ending December 31,:
1999 $ 72,000
2000 72,000
2001 24,000
---------
Net minimum lease payments 168,000
Less: Current Portion (72,00)
---------
Long-Term Portion $ 96,000
=========
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MERDINGER, FRUCHTER, ROSEN & CORSO, P.C.
CERTIFIED PUBLIC ACCOUNTS
<PAGE>
PARAMOUNT INTERNATIONAL TELECOMMUNICATIONS, INC. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
NOTE 3 - EQUIPMENT AND FURNITURE
The cost of equipment and furniture consisted of the following
as of December 31,:
<TABLE>
<CAPTION>
1998 1997
--------------- --------------
<S> <C> <C>
Telecommunication $ 234,297 $ 8,260
Computers 46,594 33,471
Furniture and Fixtures 32,263 8,137
Leasehold Improvements 4,800 -
------------- ------------
317,954 49,868
Less: Accumulated Depreciation 70,768 9,733
------------- ------------
$ 247,186 $ 40,135
============= ============
</TABLE>
Depreciation expense was $61,035 and $7,282 for 1998 and 1997,
respectively.
NOTE 4 - ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses consisted of the
following as of December 31,:
<TABLE>
<CAPTION>
1998 1997
--------------- --------------
<S> <C> <C>
Trade Payable and Accruals $ 827,553 $ 324,352
Distribution to Stockholder - 150,194
Interest Payable to Stockholder - 99,245
--------------- ---------------
$ 827,553 $ 573,791
============= ===============
</TABLE>
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MERDINGER, FRUCHTER, ROSEN & CORSO, P.C.
CERTIFIED PUBLIC ACCOUNTS
<PAGE>
PARAMOUNT INTERNATIONAL TELECOMMUNICATIONS, INC. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
NOTE 5 - NOTES PAYABLE
Notes payable consisted of the following as of December 31,:
<TABLE>
<CAPTION>
1998 1997
--------------- --------------
<S> <C> <C>
Note payable - Bank 9.25% per annum, secured by equipment
under sales-type lease, with monthly principal and interest
payments of $3,902, due
April 2001. $ 98,188 $ -
Note payable acquisition - non-interest
bearing due January 15, 1999. 146,903 -
Note payable acquisition - 6.0% per annum with interest
payable on August 15, 1999 and starting August 1999 monthly
principal payments of $3,611 due in
February 2001. 65,000 -
------------------ -----------------
Total 310,091 -
Less: Current Portion (204,790) -
------------------ ------------------
Long-Term Portion $ 105,301 $ -
================== ==================
Required principal payments under note payable are as follows:
For the year ending December 31,
1999 $ 203,330
2000 99,917
2001 6,844
------------------
Total $ 310,091
===============
</TABLE>
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MERDINGER, FRUCHTER, ROSEN & CORSO, P.C.
CERTIFIED PUBLIC ACCOUNTS
<PAGE>
PARAMOUNT INTERNATIONAL TELECOMMUNICATIONS, INC. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
NOTE 6 - NOTE PAYABLE STOCKHOLDER
A stockholder of the Company has made advances to fund
operations of the Company. As of December 31, 1998 and 1997,
the outstanding balance was $1,224,622 (including principal
and interest) and $222,946, respectfully. The note accrues
interest at 10% per annum, with interest only payments of
$10,206 starting October 1998 through September 1999, at which
time all unpaid interest and principal are due and payable.
The Stock Purchase Agreement (See Note 12 - Subsequent Event)
requires the Company to satisfy the principal and interest by
May 27, 1999. The Buyer, under the Stock Purchase Agreement
has guaranteed the Company's payment of this debt.
NOTE 7 - COMMITMENTS AND CONTINGENCIES
The Company leases its corporate office under a noncancelable
operating lease with a stockholder of the Company, which
expires on November 1, 1998. Also, the Company sub-leases
space to a third party on a month-to-month basis. The Company
also leases telecommunication equipment under non-cancelable
capital lease arrangements. Net rent expense for December 31,
1998 and 1997 was approximately $32,874 and $8,754,
respectfully.
Future minimum lease payments under noncancelable capital
leases at December 31, 1998 are as follows:
Years Ending December 31,:
1999 $ 46,404
2000 37,329
2001 5,985
-----------------
89,718
Less: Amount Representing Interest (13,744)
----------------
75,974
Less: Current Portion (36,038)
-----------------
Long-Term Portion $ 39,936
==================
- 14 -
MERDINGER, FRUCHTER, ROSEN & CORSO, P.C.
CERTIFIED PUBLIC ACCOUNTS
<PAGE>
PARAMOUNT INTERNATIONAL TELECOMMUNICATIONS, INC. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
NOTE 8 - STOCKHOLDERS' EQUITY
These financial statements have been reissued in order to
further described the following transaction:
Paramount Marketing & Telecommunications, Inc. ("PMT") was
incorporated in the State of California in March 1996. PMT
issued 1,000 shares of its no par value common stock, of which
180 were purchased by Stockholders ("Stockholders A") for
$250,000 and the remaining five stockholders received 820
shares in aggregate as founders' shares for a total of seven
stockholders. In 1996, Stockholders A also obtained the stock
held by three stockholders of PMT resulting from the outcome
of litigation. No other consideration was paid for the stock.
This left four stockholders. In 1998, in order to equalize the
capital accounts of the individual stockholders and thereby
not jeopardize the S corporation status of the Company the
original investment of $250,000 for Stockholders A was
returned to them.
In October 1996, the four stockholders of PMT formed Paramount
International Telecommunications, Inc. ("PIT"), a Nevada
Corporation. PIT issued 2,000 shares of its no par value
common stock for $1 a share.
For the year ended December 31, 1996 through the ten months
ended October 30, 1997, the Company's operations were
transacted through PMT and subsequent to October 30, 1997, the
Company's operations were transacted through PIT. The
accompanying financial statements and stockholders' equity are
for the combined companies. However, the accompanying
financial statements are presented as PIT given that the
operation of PIT are the continuation of PMT's operations.
NOTE 9 - SALES
For the year ended December 31, 1998, the company had two
customers whose sales and accounts receivable represented
approximately $8,500,000 and $577,000, respectively, of total
sales and accounts receivable.
NOTE 10 - INCOME TAXES
For the years ended December 31, 1998 and 1997, the Company
had no franchise taxes because of net loss carryforwards.
There are no significant temporary
- 15 -
MERDINGER, FRUCHTER, ROSEN & CORSO, P.C.
CERTIFIED PUBLIC ACCOUNTS
<PAGE>
PARAMOUNT INTERNATIONAL TELECOMMUNICATIONS, INC. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
differences between the Company's tax and franchise bases
except for net loss carryforwards for which a 100% allowance
has been provided because management has determined that the
Company may not realize all or a portion of this deferred tax
asset.
NOTE 11 - ACQUISITION
On July 31, 1998, the Company acquired 85% (in 1999, the
Company acquired the remaining 15%) of the outstanding common
stock of Call Data Clearing, Inc. in exchange for $765,000.
The acquisition was accounted for by the purchase method of
accounting; accordingly, the purchase price has been allocated
to the assets acquired and the liabilities assumed based on
the estimated fair values at the date of acquisition. The
excess of the purchase price over the estimated fair value of
net assets acquired of $831,155 has been recorded as excess
cost over fair value of net assets acquired, which is being
amortized over ten years.
The estimated fair value of assets acquired and liabilities
assumed is summarized as follows:
<TABLE>
<S> <C> <C>
Cash $ 353,678
Accounts Receivable 54,192
Inventories 55,177
Equipment and Furniture 82,693
Excess Cost Over Fair Value of Net Assets Acquired 831,155
Accounts Payable and Other Liabilities (611,895)
----------
Purchase Price $ 765,000
===========
</TABLE>
- 16 -
MERDINGER, FRUCHTER, ROSEN & CORSO, P.C.
CERTIFIED PUBLIC ACCOUNTS
<PAGE>
PARAMOUNT INTERNATIONAL TELECOMMUNICATIONS, INC. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
NOTE 11 - ACQUISITION -
(continued)
The following table presents the unaudited proforma condensed
statement of operations for the year ended December 31, 1998
and reflects the results of operations of the Company as if
the acquisitions of CDC had been effective January 1, 1998.
The proforma amounts are not necessarily indicative of the
combined results of operations had the acquisition been
effective as of that date, or of the anticipated results of
operations, due to cost reductions and operating efficiencies
that are expected as a result of the acquisition.
<TABLE>
<CAPTION>
December 31,
1998
(unaudited)
<S> <C> <C>
Net Sales $ 12,979,434
Gross Profit $ 1,802,313
Selling, General and Administrative Expenses $ 1,171,065
Net Income $ 609,572
</TABLE>
NOTE 12 - SUBSEQUENT EVENTS
These financial statements have been reissued in order to
reflect the closing and finalization of the following
transaction after the original report date.
On February 26, 1999, the shareholders of the Company entered
into an agreement to exchange all of the issued and
outstanding shares of the Company's common stock in exchange
for the Common Stock of a publicly held company.
- 17 -
MERDINGER, FRUCHTER, ROSEN & CORSO, P.C.
CERTIFIED PUBLIC ACCOUNTS
<PAGE>
CARNEGIE INTERNATIONAL CORPORATION
CONSOLIDATED PROFORMA UNAUDITED BALANCE SHEET
DECEMBER 31, 1998
<TABLE>
<CAPTION>
Proforma Proforma
Carnegie Paramount Adjustments Consolidated
-------- --------- ----------- ------------
ASSETS
CURRENT ASSETS
<S> <C> <C> <C> <C>
Cash $ 789,068 $ 44,859 $ 833,927
Accounts receivable - trade 770,475 918,912 1,689,387
Accounts receivable - affiliates 22,452 22,452
Accounts receivable - former subsidiaries 1,941,583 1,941,583
Note receivable and accrued interest - affiliate 2,090,000 2,090,000
Inventory 163,686 163,686
Prepaid expenses 632,597 4,515 300,000(1) 937,112
------------ ----------- -------------
Total current assets 6,409,861 968,286 7,678,147
PROPERTY AND EQUIPMENT, net 815,121 247,186 1,062,307
SOFTWARE DEVELOPMENT COSTS, net 7,998,510 7,998,510
OTHER ASSETS
Intangibles, net 14,537,241 708,724 43,599,756(1) 58,845,721
Loans receivable - officers and employees 6,560 96,000 102,560
Security deposits and other assets 91,002 15,750 1,200,000(1) 1,306,752
------ ------- ---------
14,634,803 820,474 60,255,033
------------ ----------- -------------
$ 29,858,295 $ 2,035,946 $ 76,993,997
============ =========== =============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable 1,356,047 1,356,047
Current maturities of long-term debt 112,806 240,828 353,634
Current maturities of notes payable to stockholder 172,771 1,224,622 1,397,393
and affiliate
Accounts payable and accrued expenses 1,411,136 827,553 2,238,689
Deferred revenue 66,056 38,000 104,056
--------- --------- ---------
Total current liabilities 3,118,816 2,331.003 5,449,819
LONG-TERM OBLIGATIONS
Long-term debt, less current maturities 375,359 167,199 542,558
Notes payable to stockholder and affiliates 600,527 - 600,527
------- --- ---------
975,886 167,199 1,143,085
STOCKHOLDERS' EQUITY
Convertible preferred stock 474,948 474,948
70,000 (1)
Common stock 545,212 1,020 (1,020)(1) 615,212
Additional paid-in capital 27,058,770 44,567,500 (1) 71,626,270
Accumulated deficit (1,029,973) (463,276) 463,276 (1) (1,029,973)
Accumulated other comprehensive loss (4,364) - (4,364)
------------ ----------- -------------
27,044,593 (462,256) 71,682,093
Less treasury stock at cost (1,281,000) (1,281,000)
------------ -------------
25,763,593 (462,256) 70,401,093
------------ ----------- -------------
$ 29,858,295 $ 2,035,946 $ 76,993,997
============ =========== ===========
</TABLE>
18
<PAGE>
CARNEGIE INTERNATIONAL CORPORATION
CONSOLIDATED PERFORMA UNAUDITED STATEMENT OF OPERATIONS
DECEMBER 31, 1998
<TABLE>
<CAPTION>
Proforma Proforma
Carnegie Paramount Adjustments Consolidated
-------- --------- ----------- ------------
<S> <C> <C> <C> <C>
Operating revenue $ 8,549,659 $11,314,649 $ 19,864,308
Cost of sales 3,679,506 9,667,906 13,347,412
------------ ----------- -------------
Gross profit 4,870,153 1,646,743 6,516,896
Operating expenses
Sales and marketing 1,090,929 886,561 1,977,490
General and administrative 5,399,030 - 300,000 (2) 5,699,030
Depreciation and amortization 862,763 94,753 2,179,988 (2) 3,137,504
------- ----------- -------------
7,352,722 981,314 10,814,024
------------ ----------- -------------
Operating income (2,482,569) 665,429 (4,297,128)
Other income (expense)
Interest expense (608,838) (18,492) (627,330)
Interest income 143,129 143,129
Sale of assets and release of covenants 1,551,016 - 1,551,016
--------- ---------- -------------
1,085,307 (18,492) 1,066,815
------------ ----------- -------------
Income from continuing operations before
income taxes (1,397,262) 646,937 (3,230,313)
Income taxes (benefit) - - -
------------ ----------- -------------
Net income from continuing operations $(1,397,262) $ 646,937 $ (3,230,313)
============ =========== ==============
Earnings per share
Basic $ (0.03) $ (0.06)
============ =============
Diluted $ (0.03) $ (0.06)
============ =============
Shares Outstanding
Basic 43,304,804 50,304,804
========== ==========
Diluted 47,040,585 54,040,585
========== ==========
</TABLE>
19
<PAGE>
CARNEGIE INTERNATIONAL CORPORATION
NOTES TO CONDENSED PROFORMA UNAUDITED FINANCIAL STATEMENTS
DECEMBER 31, 1998
The Proforma Unaudited Financial Statements have been prepared in order to
present consolidated financial position and results of operations of Carnegie
International Corporation (Carnegie) and Paramount International
Telecommunications Corporation (Paramount) as if the acquisition had occurred at
the beginning of 1998.
Paramount was acquired for 7 million shares of common stock of Carnegie. 6.95
million shares of stock were issued to the holders of 100 percent of the
outstanding stock of Paramount. The remaining 50,000 shares of stock were
distributed to the four executive officers of Paramount that entered into
employment agreements for a term of five years. The stock that was issued in
this transaction was valued at 85 percent of its closing price on February 26,
1999. In addition, these individuals were paid signing bonuses of $375,000 each
as consideration to enter into the employment agreements.
Following is a description of the proforma adjustments that have been made to
the financial statements.
(1) To record the acquisition of Paramount for stock and cash. The
significant components of this transaction are:
Cash for signing bonuses $ 1,500,000
Stock issued 43,137,500
Excess of liabilities assumed over assets acquired (462,256)
-----------------
Total consideration paid $ 45,099,756
=================
Of this total $1.5 million has been allocated to prepaid expenses which will be
amortized over the five year life of the employment agreements.
(2) To record one years amortization of intangibles and prepaid expenses arising
from the acquisition of Paramount. The intangible assets acquired in the
acquisition of Paramount are being amortized over a twenty-year period.
- 20 -
