SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
Current Report Pursuant
to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of report (Date of Earliest Event Reported): April 12, 1996
-------------------------
INTELECT COMMUNICATIONS SYSTEMS LIMITED
- ------------------------------------------------------------------------------
(Exact Name of Registrant as Specified in Its Charter)
BERMUDA
- ------------------------------------------------------------------------------
(State or Other Jurisdiction of Incorporation)
0-11630 N/A
- ------------------------ --------------------------------------------
(Commission File Number) (I.R.S. Employer Identification No.)
31 CHURCH STREET, HAMILTON, BERMUDA HM 12
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(Address of Principal Executive Offices) (Zip Code)
441-295-8639
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(Registrant's Telephone Number, including Area Code)
- ------------------------------------------------------------------------------
(Former Name or Former Address, if Changed Since Last Report)
8K/A-1
REPORT OF FORM 8-K/A
SECURITIES AND EXCHANGE COMMISSION
Item 7. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements of business acquired--Mosaic Information
Technologies Inc. ("MOSAIC") historical unaudited results for the years
ended December 31, 1995, 1994 and 1993 which were originally filed under
cover of Form 8-K on April 12, 1996.
As stated in Item 7 of that Report, attached herewith are audited
financial statements of MOSAIC for the years ended December 31, 1995,
1994 and 1993.
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.
INTELECT COMMUNICATION SYSTEMS LIMITED
--------------------------------------
(Registrant)
June 3, 1996 By: /s/ Phianon Pedro
- ----------------- ----------------------------------------------
Date (Signature)
Rhianon Pedro
Chief Financial Officer
8K/A-2
MOSAIC INFORMATION TECHNOLOGIES, INC.
(a development stage corporation)
Financial Statements
December 31, 1993, 1994 and 1995
(With Independent Auditors' Report Thereon)
MOSAIC INFORMATION TECHNOLOGIES, INC.
(a development stage corporation)
December 3l, 1993, 1994 and 1995
Index to Financial Statements
<TABLE>
<CAPTION>
TITLE PAGE
<S> <C>
Independent Auditors' Report..................................... F-1
Balance Sheets as of December 31, 1993, 1994 and 1995 ........... F-2
Statements of Operations for the years ended December 31, 1993, 1994
and 1995 and period from January 24, 1992 (date of inception)
through December 31, 1995 ...................................... F-3
Statements of Stockholders' Equity (Deficiency) for the years ended
December 31, 1993, 1994 and 1995 and period from January 24, 1992
(date of inception) through December 31, 1995 ................. F-4
Statements of Cash Flows for the years ended December 31, 1993, 1994
and 1995 and period from January 24, 1992 (date of inception)
through December 31, 1995 ...................................... F-5
Notes to Financial Statements ..................................... F-6
</TABLE>
[LOGO] Peat Marwick LLP
345 Park Avenue
New York, NY 10154
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Mosaic Information Technologies, Inc.:
We have audited the accompanying balance sheets of Mosaic Information
Technologies, Inc. (a development stage corporation) as of December 31, 1993,
1994 and 1995, and the related statements of operations, stockholders' equity
(deficiency) and cash flows for the years ended December 31, 1993, 1994 and 1995
and for the period from January 24, 1992 (date of inception) through December
31, 1995. 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.
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 provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Mosaic Information
Technologies, Inc. (a development stage corporation) as of December 31, 1993,
1994 and 1995, and the results of its operations and its cash flows for the
years ended December 31, 1993, 1994 and 1995 and for the period from January 24,
1992 (date of inception) through December 31, 1995 in conformity with generally
accepted accounting principles.
The accompanying financial statements have been prepared assuming that Mosaic
Information Technologies, Inc. (a development stage corporation) will continue
as a going concern. As discussed in note 1 to the financial statements, the
Company's recurring losses from operations since inception, working capital
deficiency and net capital deficiency raise substantial doubt about the entity's
ability to continue as a going concern. Management's plans in regard to these
matters are also described in notes 1 and 9(b). The financial statements do not
include any adjustments that might result from the outcome of this uncertainty.
/s/ KPMG Peat Marwick LLP
May 22, 1996
F-1
MOSAIC INFORMATION TECHNOLOGIES, INC.
(a development stage corporation)
Balance Sheets
December 31, 1993, 1994 and 1995
<TABLE>
<CAPTION>
1993 1994 1995
--------- --------- ---------
<S> <C> <C> <C>
ASSETS -- SUBSTANTIALLY PLEDGED
Current assets:
Cash and cash equivalents $ 432 3,581 219,861
Accounts receivable -- 5,534 16,755
Inventory -- -- 123,000
Prepaid compensation 7,600 4,800 --
Prepaid expenses -- -- 11,000
--------- --------- ---------
Total current assets 8,032 13,915 370,616
Computer equipment, net of accumulated
depreciation and amortization of $12,514 in
1993, $31,099 in 1994 and $54,162 in 1995 77,591 64,635 80,723
Deposits -- -- 11,308
--------- --------- ---------
$ 85,623 78,550 462,647
--------- --------- ---------
--------- --------- ---------
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
Current liabilities:
Accounts payable and accrued expenses 58,650 26,042 127,250
Accrued compensation payable 9,500 -- --
Stockholder advances, net 62,969 4,955 7,650
Current installments of obligations under
capital leases -- -- 6,398
Short-term debt--Intelect -- -- 600,000
Short-term debt, net of $3,500
discount--related party -- -- 66,500
Short-term debt, net of $10,000 discount -- -- 122,000
--------- --------- ---------
Total current liabilities 131,119 30,997 929,798
--------- --------- ---------
Obligations under capital leases, excluding
current portion -- -- 9,112
--------- --------- ---------
Stockholders' equity (deficiency):
Common stock; $.01 par value. Authorized
5,000,000 shares; issued 675 in 1993, 1,032
shares in 1994 and 1,246 shares in 1995 7 10 12
Additional paid-in capital 38,693 245,304 518,802
Deficit accumulated during the development
stage (84,196) (197,761) (935,077)
Treasury stock, 300 shares in 1995, at cost -- -- (60,000)
--------- --------- ---------
Total stockholders' equity (deficiency) (45,496) 47,553 (476,263)
Commitments and contingencies
--------- --------- ---------
$ 85,623 78,550 462,647
--------- --------- ---------
--------- --------- ---------
</TABLE>
See accompanying, notes to financial statements
F-2
MOSAIC INFORMATION TECHNOLOGIES, INC.
(a development stage corporation)
Statements of Operations
Years ended December 31, 1993, 1994 and 1995 and
period from January 24, 1992 (date of inception)
through December 31, 1995
<TABLE>
<CAPTION>
Period From
January 24, 1992
(Date of Inception)
Through
December 31,
1993 1994 1995 1995
------- ------- ------- -------
<S> <C> <C> <C> <C>
Prototype sales $ 6,400 54,064 48,926 109,390
Research and
development expenses 63,264 167,629 678,750 937,027
-------- -------- -------- --------
Operating loss (56,864) (113,565) (629,824) (827,637)
-------- -------- -------- --------
Other:
Interest expense -- -- 107,948 107,948
Interest income (52) -- (456) (508)
-------- -------- -------- --------
Net loss $ (56,812) (113,565) (737,316) (935,077)
-------- -------- -------- --------
-------- -------- -------- --------
</TABLE>
See accompanying notes to financial statements.
F-3
MOSAIC INFORMATION TECHNOLOGIES, INC.
(a development stage corporation)
Statement of Stockholders' Equity (Deficiency)
Years ended December 31, 1993, 1994 and 1995 and
period from January 24, 1992 (date of inception)
through December 31, 1995
<TABLE>
<CAPTION>
Common Stock Treasury Stock
------------- --------------
Deficit
Accumulated
Additional During the
Paid-in Development
Shares Amount Capital Stage Shares Amount Total
----------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Common stock issued to founders 600 $ 6 1,194 -- -- $ -- 1,200
Net loss for period ended December
31, 1992 -- -- -- (27,384) -- -- (27,384)
------ ------ ------ ------ ----- ------ -------
Balance at December 31, 1992 600 6 1,194 (27,384) -- -- (26,184)
Issuance of common stock 40 1 19,999 -- -- -- 20,000
Issuance of common stock in exchange
for services rendered 35 -- 17,500 -- -- -- 17,500
Net loss for year ended December 31,
1993 -- -- -- (56,812) -- -- (56,812)
------ ------ ------ ------ ----- ------ -------
Balance at December 31, 1993 675 7 38,693 (84,196) -- -- (45,496)
Issuance of common stock 314 3 127,097 -- -- -- 127,100
Capital contributed from founding
stockholders -- -- 58,014 -- -- -- 58,014
Issuance of common stock in exchange
for services rendered 43 -- 21,500 -- -- -- 21,500
Net loss for year ended December 31,
1994 -- -- -- (113,565) -- -- (113,565)
------ ------ ------ ------ ----- ------ -------
Balance at December 31, 1994 1,032 10 245,304 (197,761) -- -- 47,553
Issuance of common stock, net of
brokering expenses of $30,000 13 -- 35,000 -- -- -- 35,000
Issuance of common stock in
exchange for services rendered 201 1 124,999 -- -- -- 125,000
Issuance of common stock in
connection with short-term
debt repayment 201 1 99,999 -- -- -- 100,000
Issuance of warrants in connection
with short-term debt issuances -- -- 13,500 -- -- -- 13,500
Purchase of treasury stock -- -- -- -- (300) (60,000) (60,000)
Net loss for year ended December 31,
1995 -- -- -- (737,316) -- -- (737,316)
------ ------ ------ ------ ----- ------ -------
Balance at December 31, 1995 1,447 $ 12 518,802 (935,077) (300) $(60,000) (476,263)
------ ------ ------ ------ ----- ------ -------
------ ------ ------ ------ ----- ------ -------
</TABLE>
See accompanying notes to financial statements.
F-4
MOSAIC INFORMATION TECHNOLOGIES, INC.
(a development stage corporation)
Statements of Cash Flows
Years ended December 31, 1993, 1994 and 1995 and
period from January 24, 1992 (date of inception)
through December 31, 1995
<TABLE>
<CAPTION>
Period From
January 24, 1992
(Date of Inception)
Through
1993 1994 1995 December 31, 1995
--------- --------- --------- ---------------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss $ (56,812) (113,565) (737,316) (935,077)
Adjustments to reconcile net loss to net cash (used in)
provided by operating activities:
Depreciation and amortization 10,763 18,585 23,063 54,162
Other non-cash expenses:
Services rendered for common stock 17,500 21,500 95,000 134,000
Interest expense related to common stock issued in
connection with short-term debt repayment -- -- 100,000 100,000
Increase in accounts receivable -- (5,534) (11,221) (16,755)
Increase in inventories -- -- (123,000) (123,000)
(Increase) decrease in prepaid compensation (7,600) 2,800 4,800 --
Increase in prepaid expenses -- -- (11,000) (11,000)
Increase in other assets -- -- (11,308) (11,308)
Increase (decrease) in accounts payable and accrued
expenses 58,650 (32,608) 101,208 127,250
Increase (decrease) in accrued compensation 3,500 (9,500) -- --
--------- --------- --------- ---------
Net cash (used in) provided by operating activities 26,001 (118,322) (569,774) (681,728)
--------- --------- --------- ---------
Cash flows from investing activities:
Capital expenditures (72,306) (5,629) (20,490) (116,224)
--------- --------- --------- ---------
Net cash used in investing activities (72,306) (5,629) (20,490) (116,224)
--------- --------- --------- ----------
Cash flows from financing activities:
Proceeds from issuance of short-term debt-Intelect -- -- 600,000 600,000
Proceeds from issuance of short-term debt--related party -- -- 270,000 270,000
Principal payments on short-term debt--related party -- -- (200,000) (200,000)
Proceeds from issuance of short-term debt -- -- 132,000 132,000
Principal payments under capital lease obligations -- -- (3,151) (3,151)
Proceeds from issuance of common stock 20,000 127,100 65,000 213,300
Payments to acquire treasury stock -- -- (60,000) (60,000)
Increase in stockholder advances, net 25,632 -- 2,695 65,664
--------- --------- --------- ----------
Net cash provided by financing activities 45,632 127,100 806,544 1,017,813
--------- --------- --------- ----------
Net change in cash and cash equivalents (673) 3,149 216,280 219,861
Cash and cash equivalents at beginning of period 1,105 432 3,581 --
--------- --------- --------- ----------
Cash and cash equivalents at end of period $ 432 3,581 219,861 219,861
--------- --------- --------- ----------
--------- --------- --------- ---------
Non-cash financing and investing activities:
Computer equipment acquired under capital leases $ -- -- 18,661 18,661
--------- --------- --------- ----------
--------- --------- --------- ----------
Stockholders advances contributed to capital $ -- 58,014 -- 58,014
--------- --------- --------- ----------
--------- --------- --------- ----------
</TABLE>
See accompanying notes to financial statements.
F-5
MOSAIC INFORMATION TECHNOLOGIES, INC.
(a development stage corporation)
Notes to Financial Statements
December 31, 1993, 1994 and 1995
(1) ORGANIZATION AND BASIS OF PREPARATION
Mosaic Information Technologies, Inc. (the "Company" or "Mosaic"), a New Jersey
corporation, was formed in January 1992 to develop, manufacture and service
video-conferencing equipment. The Company is in the development stage and,
accordingly, the accompanying financial statements are presented in a format
prescribed for a development stage enterprise.
Since its inception in January 1992, the Company's activities have consisted
primarily of the research and development of video-conferencing equipment.
Accordingly, the Company had minimal revenues from prototype product sales.
Substantially all of the Company's costs relate to developing its
video-conferencing technology.
The Company has incurred recurring losses from operations since inception.
Management intends to continue development of its video-conferencing technology
in order to generate future revenues. In addition, the Company is actively
pursuing additional financing sources (see note 9(b)). Management believes that
it can successfully develop and market its product and obtain financing,
however, there can be no assurance that it will be able to do so. The
accompanying financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
(2) SIGNIFICANT ACCOUNTING POLICIES
(A) CASH EQUIVALENTS
The Company considers all highly liquid instruments with original
maturities of three months or less to be cash equivalents. Cash
equivalents consist of $200,000 invested in a certificate of deposit at
December 31, 1995.
(B) INVENTORIES
Inventories are stated at the lower of cost or market costs and are
determined on the first-in, first-out basis.
(C) COMPUTER EQUIPMENT
Computer equipment is stated at cost. Computer equipment under capital
leases are recorded at the present value of their minimum lease
payments. Depreciation of computer equipment is calculated on the
straight-line method over an estimated life of five years.
Computer equipment held under capital leases is amortized on a
straight-line basis over the shorter of the lease term or estimated
useful life of the asset.
(Continued)
F-6
MOSAIC INFORMATION TECHNOLOGIES, INC.
(a development stage corporation)
Notes to Financial Statements
(2), CONTINUED
(D) INCOME TAXES
The Company accounts for income taxes in accordance with the provisions
of Statement of Financial Accounting Standards No. 109, "Accounting for
Income Taxes" ("Statement 109"). Under the asset and liability method of
Statement 109, deferred tax assets and liabilities are recognized for
the future tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and liabilities
and their respective tax bases and operating loss and tax credit
carryforwards. Deferred tax assets and liabilities, if any, are measured
using enacted tax rates expected to apply to taxable income in the years
in which those temporary differences are expected to be recovered or
settled. Under Statement 109, the effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date.
(E) PROTOTYPE REVENUE RECOGNITION
Revenue from prototype product sales is recognized in accordance with
contractual acceptance terms.
(F) RESEARCH AND DEVELOPMENT
Research and development costs are expensed as incurred.
(G) FAIR VALUE OF FINANCIAL INSTALLMENTS
Financial Accounting Standards Board Statement No. 107, "Disclosures
about Fair Value of Financial Instruments," defines the fair value of a
financial instrument as the amount at which the instrument could be
exchanged in a current transaction between willing parties.
Cash, receivables, prepayments, short-term debt, payables and accrued
liabilities approximate fair value because of the short-term maturity of
those instruments.
(H) USE OF ESTIMATES
The preparation of the 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 expenses
during the reporting period. Actual results could differ from those
estimates.
(I) SHARES OF COMMON STOCK
The accompanying financial statements reflect the retroactive effect of
certain issuances of common stock in the period applicable to the date
that the stock transactions took place as opposed to the delivery and
issuance of such common stock certificates which took place in a
subsequent period.
(Continued)
F-7
MOSAIC INFORMATION TECHNOLOGIES, INC.
(a development stage corporation)
Notes to Financial Statements
(3) STOCKHOLDER ADVANCES, NET
The Company received various advances from the Company's founding
stockholders during the period from January 24, 1992 (date of inception)
through December 31, 1995. In 1994, $58,014 of these advances were
contributed to stockholders' equity (deficiency) as additional paid-in
capital.
(4) SHORT-TERM DEBT
At December 31, 1995, short-term debt of the Company totaled $788,500, net
of debt discount of $13,500.
(i) In December 1995, the Company obtained a $70,000 loan from a
stockholder, bearing interest at 10% per annum with a due date on or
before February 29, 1996. In connection with this loan, warrants to
purchase 70 additional shares of common stock of Mosaic were granted at
the subscription price of $1,000 per share provided the loan was not
repaid or canceled on or before the due date. In connection with the
issuance of these warrants, the Company recorded debt discount of
$3,500. This loan was repaid in full on March 29, 1996.
(ii) In December 1995, the Company issued a senior secured convertible note
to Intelect Communications Systems Limited ("Intelect") for $600,000,
bearing interest at 12-1/2% and increasing to 15% (based on the status
of the acquisition of the Company by Intelect (see note 9 (b))), with a
maturity date of December 31, 1996. In the event that Intelect acquires
all of the capital stock of the Company on or before March 31, 1996, the
outstanding, balance of the note will be credited, in exchange for the
cancellation of the note, against the aggregate amount of the equity
contribution provided to the Company by the holder. In the event the
note is not repaid in full or canceled on or before December 31, 1996,
the holder shall have the option for a 90-day period commencing on
January 1, 1997, to convert the note, without the payment of any other
consideration, into such number of shares of common stock of the Company
as will equal 51% of the Company's then outstanding number of shares of
voting capital stock on a fully-diluted basis. The note is secured by
substantially all of the assets of the Company.
(iii) In November 1995, the Company received a $132,000 loan from an
independent investor, bearing interest at 20% per annum. Repayment of
the loan was originally due on or before December 25, 1995, but was
verbally extended pending the acquisition of the Company by Intelect
(see note 9 (b)). In consideration of the loan, the Company granted
warrants to purchase 200 shares of common stock of the Company at the
subscription price of $l,000 per share. In connection with the issuance
of these warrants, the Company recorded debt discount of $10,000. This
loan was repaid in full on March 29, 1996.
(iv) In June 1995, the Company issued a $200,000 promissory note to a
stockholder, bearing interest at a floating rate of 3% above the prime
lending rate not to exceed 12% per annum with a due date on or before
December 31, 1995. The loan was paid in full during 1995 together with
100 shares of common stock. As a result of the 100 shares granted in
connection with the repayment of the note, $100,000 of interest expense
were recorded in the 1995 statement of operations.
(Continued)
F-8
MOSAIC INFORMATION TECHNOLOGIES, INC.
(a development stage corporation)
Notes to Financial Statements
(5) CAPITAL LEASE OBLIGATIONS
The Company leases certain computer equipment under agreements which are
classified as capital leases. The future minimum payments under capitalized
leases that have initial or remaining noncancelable lease terms in excess of
one year are $6,398 in 1996 and 1997, and $2,714 in 1998.
(6) EMPLOYMENT AGREEMENTS
The Company has entered into employment agreements with two key employees.
These agreements provide for sales commissions or salaries based on the
revenues of the Company. In addition, each employee is entitled to a
percentage of the capital raised by the employee for the Company. The
agreements expire in May 1998 and July 2000. In connection with Intelect's
acquisition of the Company, these employment agreements were terminated and
new agreements were entered into (see note 9 (b)).
(7) INCOME TAXES
The Company realized no income tax benefit for the years ended December 31,
1995, 1994, and 1993 and for the period from January 24, 1992 (date of
inception) through December 31, 1995. Based upon the Company's historical
operating losses, the Company has established a valuation allowance equal to
the computed effective tax benefit of the Company's net operating loss
carryforwards due to the uncertainty of the realizability of the asset.
(8) SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for interest was $7,948 for the year ended December 31, 1995. No
cash was expended for interest for the years ended December 31, 1993 and
1994.
(9) SUBSEQUENT EVENTS
(A) ADDITIONAL SHORT-TERM DEBT PAYABLE TO INTELECT
Subsequent to December 31, 1995, Intelect advanced the Company an
additional $l,000,000 bearing, interest at LIBOR plus 2%.
(B) SALE OF THE COMPANY
On March 19, 1996, Intelect signed a definitive Agreement and Plan of
Merger among Intelect, Mid-Ocean, Inc. and the Company and the
shareholders of the Company (the "Merger Agreement"). Pursuant to the
Merger Agreement, on March 29,1996, (i) Mid-Ocean, Inc., a wholly owned
subsidiary of Intelect, merged with and into the Company and the Company
was the surviving corporation, (ii) all of the shares of stock owned by
the Company's shareholders were exchanged for an aggregate of 479,370
shares of common stock of Intelect and (iii) the Company became a wholly
owned subsidiary of Intellect.
(Continued)
F-9
MOSAIC INFORMATION TECHNOLOGIES, INC.
(a development stage corporation)
Notes to Financial Statements
(9), CONTINUED
(B), CONTINUED
Intelect acquired the Company for a total initial consideration of
479,370 shares at $5 per share plus certain other contingent
consideration payable as follows:
(a) up to 700,000 common shares to be issued upon the Company meeting
certain defined revenues and operating profits in the three years
after the closing;
(b) up to 400,000 common shares to be issued upon the achievement in
three years after the closing of certain marketing and technological
developments and other milestones relating to the Company's
products; and
(c) up to 300,000 common shares based upon the achievement of certain
intercompany revenue objectives in the three years after the
closing,
provided, however, no more than 1,100,000 shares of Intelect's common
stock may be earned as contingent consideration.
The merger was consummated on March 29, 1996 by the exchange of 319.58
shares of common stock of Intelect for each outstanding share of the
Company's common stock, for a total consideration of 479,370 shares of
Intelect common stock.
In order to complete the merger, during the period from January 1, 1996
to March 29, 1996, the Company issued 554 shares of common stock in
exchange for the redemption and cancellation of all existing and
outstanding warrants
The Company paid signing bonuses aggregating $500,000, composed of
50,000 shares of Intelect common stock at $5 per share, pursuant to each
employment agreement signed by and between the Company and two of its
officers and directors.
In addition, the Company entered into three year employment agreements
with two of its officers. Under the terms of the agreements, the
officers will receive base salaries aggregating $275,000 and are
entitled to annual cash bonuses of up to 100% of their base salaries and
additional bonus shares of Intelect's common stock, if certain
performance criteria are met.
F-10
