SECURITIES EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
Annual Report Pursuant to
the Securities Exchange Act of 1934
For the fiscal year ended June 30, 1995
Commission file number 0-13313
TELECONFERENCING SYSTEMS INTERNATIONAL, INC.
----------------------------------------------------
(Exact name of registrant as specified in its charter)
Colorado 36-3296861
---------------------- ------------------
(State of incorporation) (I.R.S. Employer
Identification No.)
P.O. Box 4197, Englewood, CO 80155-4197
--------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (303)761-8829
Securities registered pursuant to Section 12(b) of the Act:
Title of each class: None
----
Name of each exchange on which registered: N/A
---
Securities registered pursuant to Section 12(g) of the Act:
Title of each class: Common Stock, No par value
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to the filing
requirements for at least the past 90 days.
Yes X No
--- ---
Check if disclosure of delinquent filers pursuant to Item 405 of Regulation S-B
is not contained in this form, and no disclosure will be contained, to the best
of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10- KSB or any amendment to
this Form 10-KSB. [ ]
State issuer's revenues for its most recent fiscal year. $589,504
<PAGE>
Transitional Small Business Disclosure Format:
Yes X No
----- -----
Aggregate market value of the voting stock held by non-affiliates of the
registrant as of June 30, 1995 was $27,685, based upon the closing price of the
common stock on June 30, 1995.
Number of outstanding shares of the registrant's no par value common stock, as
of June 30, 1995: 41,733,000.
DOCUMENTS INCORPORATED BY REFERENCE
List hereunder the following documents if incorporated by reference and the
Part of this Form 10-K into which the document is incorporated: (1) Any annual
report to security holders - None; (2) Any proxy or information statement -
None; (3) Any prospectus filed pursuant to Rule 424(b) or (c) under the
Securities Act of 1933 - None.
<PAGE>
PART 1
------
Item 1. DESCRIPTION OF BUSINESS
(a) Business Development
--------------------
(1) Teleconferencing Systems International, Inc. ("Company" or "TSI"), a
Colorado corporation, was incorporated on December 19, 1983, to design,
manufacture and market a wireless audio teleconferencing system called the TSI
Conferencer.
Until 1987, marketing of the wireless TSI Conferencer, accessories and
various versions of the Conferencer was accomplished by dealer enrolled
resellers, as well as, by direct sales efforts in areas where there were no
Company representatives. In early 1987, a plan was implemented which initiated
direct selling of wireless TSI Conferencers by inside sales associates of the
Company. Within a period of approximately one year, the Company reversed the
source of sales from predominately resellers to end users.
In the Fall of 1990, the Company began to market and distribute NEC
VoicePoint speakerphones, in addition to its wireless TSI Conferencer Systems.
The reason for becoming a distributor of the NEC product was to increase sales
and revenue opportunities for the Company. This product was not in competition
with the wireless TSI Conferencer and was, therefore, an enhancement to the
Company's product line.
The following is information pertaining to major activities of the Company
during the last four fiscal years. The Company became a dealer for Coherent
ConferenceMaster Systems in 1991. Coherent's product was small room conferencer
system with several features. For approximately a two year period, Coherent
ConferenceMaster Systems provided sales revenue for the Company. With the
evolution of small room systems available in the industry, another small room
system appeared in 1993, the Polycom Sound Station. The Company became a dealer
for the Polycom Sound Station and sold the system beginning in 1994.
During 1991 and 1992, TSI developed a version of the wired TSI Conferencer
System, the Court/Line system, to provide an audio interface to multi-tract tape
recorders, and sound systems which are present in most courtrooms. Sales were
made during 1993 and 1994 fiscal years to both Federal and State Courts in
various locations throughout the country. Due to competition in the market and
new systems introduction, the Company's business declined, dramatically in 1995.
The Company was forced to lay off its sales staff and close operations due
to the decline in sales. Although the Company has a small inventory of outdated
equipment, it is not engaged in active sales operations at year end.
(2) The Company has not been involved in any bankruptcy, receivership or similar
proceeding during its existence.
(3) TSI has not been involved in any material reclassification, merger,
consolidation or purchase or sale of a significant amount of assets not in the
ordinary course of business during the Company's last three fiscal years.
<PAGE>
(b) Business of Issuer
------------------
The Company no longer has any primary products. It has a small inventory of
products manufactured by others.
(2) Marketing and Distribution Methods
----------------------------------
Products, Services and Marketing. The Company no longer manufactures
products or sells products manufactured by others, although it holds a small
inventory of conferencing product that is outdated.
(3) Status of Products
------------------
In 1995, the Company was in the final stages of development of a full
duplex, scrambled wireless system. This product was to utilize an existing full
duplex speakerphone system manufactured by Gentner Communications of Salt Lake
City. This new system could not be manufactured cheaply enough to be saleable in
the retail market against competitive products.
(4) Competition
-----------
In marketing the TSI Conferencer, the Company faced significant competition
from other companies such as AT&T Information Systems and Shure Brothers that
market conventional wired systems. The Company's competitors have greater
financial and personnel resources to market their systems.
(5) Raw Materials
-------------
None.
(6) Customer Dependence
-------------------
No one customer accounted for more than 10% of the Company's sales during
the fiscal year ended June 30, 1995.
(7) Patents, Trademarks and Licenses
--------------------------------
A United States patent was granted on May 26, 1987, and a Canadian patent
was granted in November 1986, covering the wireless features of the TSI
Conferencer. Such patent is outdated.
<PAGE>
(8) Government Approval
-------------------
None Pending.
(9) Governmental Regulations
------------------------
Governmental regulations (FCC) require that all frequencies used in
wireless devices be approved by the agency. The Company's former main product
line, the Wireless Conferencer Systems, was approved by the FCC.
(10) Research and Development
------------------------
The Company spent $0 on research and development activities during the
fiscal years ended June 30, 1995 and $12,559 in 1994.
(11) Environmental Regulations
-------------------------
Compliance with federal, state and local provisions regulating the
discharge of materials into the environment does not have any material effect on
the on the capital expenditures, earnings and competitive position of the
Company.
(12) Employees
---------
As of June 30, 1995, the Company had no full time employees and one
part-time employee, its President.
ITEM 2. DESCRIPTION OF PROPERTY
(a) Properties
----------
The Company maintains administrative offices at P.O. Box 4197, Englewood,
CO 80155-4197 on a shared basis with other businesses operated by the Company's
President.
(b) Investment Policies
-------------------
The Company does not invest in, have interests in, have investments in real
estate or real estate mortgages, nor does the Company have securities of or
interests in persons engaged in real estate activities.
(c) Description of Real Estate (owned) and Operative Data
------------------------------------------------------
The Company does not own real estate or property.
ITEM 3. LEGAL PROCEEDINGS
There are no pending legal proceedings to which the Company is a party of
to which any of its property is subject.
<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of the Company's shareholders during the
last quarter of the Company's fiscal year ended June 30, 1995.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
(a) Market Information
-------------------
The following table shows the range of high and low bid quotations of the
shares of the Company's common stock for the eight fiscal quarters ended June
30, 1995.
BID
---
Period High Low
- ------------------- ------ ------
07/01/93 - 09/30/93 $0.005 $0.001
10/01/93 - 12/31/93 $0.005 $0.001
01/01/94 - 03/31/94 $0.005 $0.001
04/01/94 - 06/30/94 $0.005 $0.002
07/01/94 - 09/30/94 $0.005 $0.002
10/01/94 - 12/31/94 $0.005 $0.002
01/01/95 - 03/31/95 $0.005 $0.002
04/01/95 - 06/30/95 $0.005 $0.002
The shares are traded in the over-the-counter market. The above quotations
were furnished by the National Quotation Bureau Incorporated. Such quotations
represent prices between dealers and do not include retail mark-ups, mark-downs,
or commissions and may not represent actual transactions.
(b) Holders
-------
As of June 30, 1995, the Company had approximately 383 shareholders of
record.
(c) Dividends
---------
The Company has not declared cash dividends on its common stock since its
inception and the Company does not anticipate paying any cash dividends in the
foreseeable future.
<PAGE>
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS
Management's Discussion and Analysis of Financial Condition and Results of
Operations
---------------------------------------------------------------------------
The following is management's discussion and analysis of certain
significant factors which affected the Company's financial condition and results
of operation during the periods in the accompanying consolidated financial
statements. The Company ceased active operations at year end, June 30, 1995. The
Company intends to seek business acquisition or merger opportunities in the
future.
Liquidity
- ---------
The Company had cash of $47,671 at June 30, 1995.
During the course of the fiscal year ended June 30, 1995, the Company's
outstanding debt level increased to $138,000 from $106,000 in fiscal year ended
June 30, 1994. This debt was used to fund the net loss incurred.
Working capital decreased $391,829 from $263,686 at June 30, 1994, to a
deficit of ($128,135) at June 30, 1995. Inventory was written down by $314,829
due to obsolescence.
Capital Resources
- -----------------
None. Operations were suspended in 1995 and the Company has no capital
resources from which to fund operations.
The Company has no other known material commitments for capital
expenditures. The Company has no additional plans, agreements, or commitments
concerning any transaction which would require the Company to use a significant
amount of capital.
Results of Operations
- ---------------------
Comparison of Fiscal 1995 to Fiscal 1994. The Company's sales revenues for
fiscal 1995 were $589,500 as compared to $753,500 for fiscal 1994, a decrease of
$164,000 or 22%. This decrease is attributable to lower sales in both
manufactured and distributed products. The Company suspended active business
operations in June 1995.
Cost of sales were $429,000 or 73% of net sales, for fiscal year 1995
compared to $546,900 or 73% of net sales, for fiscal year 1994. All sales
operations were suspended in June 1995.
Selling, general and administrative expenses were $285,500 for fiscal year
1995 compared to $391,500 for fiscal year 1994, a decrease of $106,000 or 27%.
This decrease is attributable to suspension of operations.
The Company had a net loss of $499,200 in fiscal year 1995 compared to a
net loss of $183,300 in fiscal year 1994.
<PAGE>
The management of the Company does not believe that inflation has had any
material effect on the Company during the fiscal year ended June 30, 1995.
ITEM 7. FINANCIAL STATEMENTS
(a)1. The following Financial Statements are filed as part of this report as
appear after the
Name of Document Page
---------------- ----
Signature Page of this Report. 14
INDEPENDENT AUDITOR'S REPORT F-2 & F-3
CONSOLIDATED BALANCE SHEET - June 30, 1995 F-4
CONSOLIDATED STATEMENTS OF OPERATIONS - for
the years ended June 30, 1995 and June 30, 1994 F-5
CONSOLIDATED STATEMENTS OF CASH FLOWS - for
the years ended June 30, 1995 and 1994 F-6
CONSOLIDATED STATEMENT OF CHANGES IN
STOCKHOLDER'S EQUITY for the Period from
July 1, 1994 through June 30, 1995 F-7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS F-8
(a)2. There are no Financial Statements Schedules required to be filed as part
of this Report.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Hein + Associates LLP, formerly CPA's for the Company, were terminated by
the Company as auditor in 1997. Gaylen R. Hansen, CPA was engaged in June 1997
as auditor for Company.
In connection with audits of two most recent fiscal years and any interim
period preceding resignation, no disagreements exist with any former accountant
on any matter of accounting principles or practices, financial statement
disclosure, or auditing scope of procedure, which disagreements if not resolved
to the satisfaction of the former accountant would have caused him to make
reference in connection with his report to the subject matter of the
disagreement(s).
<PAGE>
The audit report by Hein + Associates LLP for the year ended June 30, 1994,
contained an opinion which included a paragraph discussing uncertainties related
to continuation of the Registrant as a going concern.
The decision to change accountants was approved by the Board of Directors
as the registrant has no audit committee.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
WITH SECTION 16(a) OF THE EXCHANGE ACT.
(a) Identification of Directors.
The present term of office of each director will expire at the next Annual
Meeting of Shareholders. The name, position with the Company, age of each
director and the period during which each director has served are as follows:
Name and Position in the Company Age Director Since
- -------------------------------- --- --------------
Keith R. Shwayder 56 1983
(Chairman of the Board, President
and Chief Executive Officer)
Gerard J. Deinzer* 72 1993
(Vice President of Engineering)
Thomas J. O'Malley* 52 1987
(Vice President of Sales)
* Resigned at June 30, 1995
There was no arrangement or understanding between any director and any
other person pursuant to which any director was selected as such.
Identification of Executive Officers.
- -------------------------------------
Each executive officer will hold office until his successor is duly elected
and qualified or until his resignation or until he shall be removed in the
manner provided by the Company's bylaws. The Company's executive officers, their
ages, position with the Company and periods during which they have served are as
follows:
<PAGE>
Name and Position in the Company Age Officers Since
- -------------------------------- --- --------------
Keith R. Shwayder 56 1984
(Chairman of the Board, President
and Chief Executive Officer)
Gerard J. Deinzer* 72 1984
(Vice President of Engineering)
Thomas J. O'Malley* 52 1984
(Vice President of Sales)
*Resigned at June 30, 1995
Business Experience (1) The following is a brief account of the business
experience for at least the last five years of each director and executive
officer of the Company:
Name of Director or
Executive Officer Principal Occupation the Last Five Years
- -------------------- ----------------------------------------
Keith R. Shwayder President of the Company since July, 1991;
Director of the Company since December 1983;
Chairman of the Board and Chief Executive Officer
of the Company since September, 1984; Director of
Masada, Ltd., which owns a radio station, since
March 1985; President and director of SRF
Investments, Inc. d/b/a West Coast Tel-Data, Inc.
since August, 1989; President and director of
South West Tel-Data, Inc. since October, 1989.
President, director and sole shareholder of
Telephone Systems International, Inc., a holding
company for wholly owned subsidiaries of which are
SRF Investments, Inc. d/b/a West Coast Tel-Data,
Inc. and South West Tel-Data, Inc. since January
1993; President of Teletek, Inc. which installs
cable for telephone systems and operates pay
telephones, from September, 1982 to January, 1993,
and from 1979 to 1981; director of Teletek, Inc.
from 1979 to January, 1993.
Gerard J. Deinzer* Director of the Company since September, 1993;
Vice President of Engineering of the Company since
September, 1984.
Thomas J. O'Malley* Director of the Company since October, 1987; Vice
President of Sales of the Company since September,
1984.
*Resigned as of June 30, 1995
To the Company's knowledge all directors and officers or more than 10%
shareholder of the Company failed to timely file Form 5 during the Company's
fiscal year ended June 30, 1995.
<PAGE>
(b) Identification of Certain Significant Employees. Not applicable.
(c) Family Relationships. There are no family relationships between the
executive officers and directors of the Company.
(d) Involvement in Legal Proceedings. Not Applicable.
ITEM 10. EXECUTIVE COMPENSATION
The following table sets forth for the Company's fiscal year ended June 30,
1995, the compensation paid by the Company for services rendered in all
capacities to the Company to the person who at June 30, 1995, was the chief
executive officer of the Company. No other executive officers of the Company
received salary and bonus from the Company in excess of $100,000 during such
fiscal year.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
=========================================================================================
Name and Principal Position Year Annual Compensation Salary
- -----------------------------------------------------------------------------------------
<S> <C> <C>
Keith R. Shwayder 07/01/94-06/30/95 See "Certain Transactions"
(Chairman of the Board, President, 07/01/93-06/30/94 $66,000
and Chief Executive Officer) 07/01/92-06/30/93 $88,000
=========================================================================================
</TABLE>
Stock Options
No stock options were granted or exercised during the Company's fiscal year
ended June 30, 1995, and the Company has no stock options outstanding at June
30, 1995.
Compensation of Directors
No director received compensation for serving on the Company's Board of
Directors.
ITEM 11. SECURITY, OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
(a) and (b) Security Ownership of Certain Beneficial Owners and Management. The
following table sets forth as of June 30, 1995, the number of shares of the
Company's no par value common stock owned by each person who owned of record, or
was known to own beneficially, more than 5% of the number of shares of the
Company's outstanding common stock, sets forth the number of shares of the
Company's outstanding common stock beneficially owned by each of the Company's
current directors and officers, and sets forth the number of shares of the
Company's common stock beneficially owned by all of the Company's current
directors and officers as a group:
<TABLE>
<CAPTION>
Name of Beneficial Position with Amount and Nature of Class
Owner Company Beneficial Ownership
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Keith R. Shwayder Chairman of the 32,504,600 77.89%
10200 E. Girard Avenue Board, Chief
Suite 309A, Building A Executive Officer
Denver, CO 80231 and Director
Gerard J. Deinzer Vice President of 0 00.00%
Engineering and
Director
Thomas J. O'Malley Vice President of 5,000 00.01%
Sales and Director
All Directors and Officers 32,509,600 77.90%
as a Group (3 Persons)
</TABLE>
(c) Changes in Control. There are presently no arrangements of any kind which
may at a subsequent date result in a change of control of the Company, however,
the Company is actively seeking an acquisition, or merger, or to be acquired,
which could involve a change of control.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
(a) and (b) Transactions with Management and Others and Certain Business
Relationships. In June 1993, the Company loaned South West Tel-Data, Inc., an
affiliate of Keith R. Shwayder, $15,000 and provided South West Tel-Data, Inc.
with a $20,000 line of credit. The Company had advanced South West Tel-Data,
Inc. $30,500 as of June 30, 1995.
Keith R. Shwayder, President, CEO and Director, allocates approximately 3%
of his time to the Company's business. Keith R. Shwayder controls Summit
Mortgage Investments, Inc., which was paid $44,000 of management fees by the
Company during the Company's fiscal year ended June 30, 1995. The Company
believes that the management fees to Summit Mortgage Investments, Inc. are
reasonable and equitable between the companies.
On November 5, 1993, the Company and SRF Investments, Inc. ("SRF") an
affiliate of the Company, as co-borrowers, obtained a term loan of $400,000 and
a revolving line of credit of $300,000 from LaSalle Bank Lake View, Illinois,
that is 85% guaranteed by the Small Business Administration. The Company and SRF
have a common majority shareholder, and a common officer and director, Keith R.
Shwayder. The repayment of such funds will be allocated appropriately. The
Company and SRF are jointly and severally liable as co-borrowers for the amounts
borrowed and Mr. Shwayder is a personal guarantor for the entire amount
borrowed. As of June 30, 1995, the total due on the term loan from LaSalle Bank
Lake View was approximately $186,279 of which $138,382 was directly attributable
to the Company. This is a seven year loan at a fixed rate of 8.5% annual
interest, payable in monthly installments of $1,020 principal and approximately
$650 in interest. As of June 30, 1995, the total due on the revolving line of
credit was $329,824 of which nothing was directly attributed to the Company.
<PAGE>
(c) Indebtedness of Management. No director or executive officer of the Company
and no associate of any such director or executive officer was indebted to the
Company at any time since the beginning of the Company's last fiscal year in an
amount in excess of $60,000.
(d) Transactions with Promoters. Not applicable.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) Lists of Exhibits Required by Item 601 of Regulation S-B
(3.1) Articles of Incorporation, as amended, which are hereby incorporated
herein by reference to Exhibit (3.1) to the Company's Annual Report on
Form 10-K for the fiscal year June 30, 1993.
(3.2) Bylaws as amended through October 14, 1987, which are hereby
incorporated herein by reference to Exhibit (3.2) to the Company's
Annual Report on form 10-K for the fiscal year ended June 30, 1993.
(10.1) Thomas J. O'Malley compensation Plan effective March 1, 1993, which is
hereby incorporated herein by reference to Exhibit (10.4) to the
Company's Annual Report on Form 10K for the fiscal year ended June 30,
1989.
(10.2) Agreement dated April 1, 1991, for management services between the
Company and Summit Mortgage Investments, Inc. which is hereby
incorporated herein by reference to Exhibit (10.2) to the Company's
Annual Report on Form 10-K for the fiscal year ended June 30, 1991.
(10.4) Secured Promissory Note dated June 25, 1993, from South West Tel-Data,
Inc. to the Company, which is hereby incorporated by reference to
Exhibit 10.4 to the Company's Annual Report on Form 10K for the fiscal
year ended June 30, 1993.
(10.5) Secured Promissory Note (Revolving Line of Credit) dated June 25,
1993, from South West Tel-Data, Inc. to the Company, which is hereby
incorporated by reference to Exhibit 10.4 to the Company's Annual
Report on Form 10K for the fiscal year ended June 30, 1993.
(b) Reports on Form 8-K. No reports on Form 8-K were filed during the
fiscal quarter ended June 30, 1995.
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the Registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Dated: July 9, 1997
TELECONFERENCING SYSTEMS INTERNATIONAL, INC.
a Colorado corporation
By: /S/ KEITH R. SHWAYDER
------------------------------------------
Keith R. Shwayder, Chairman of the Board,
President, and Chief Executive Officer,
Principal Executive Officer, Chief
Financial Officer, Principal Accounting
Officer and Director
<PAGE>
- --------------------------------------------------------------------------------
TELECONFERENCING SYSTEMS INTERNATIONAL, INC.
Consolidated Financial Statements
Table of Contents
================================================================================
PAGE
----
Reports of Independent Public Accountants F-2 & F-3
Consolidated Financial Statements
Consolidated Balance Sheet F-4
Consolidated Statement of Operations F-5
Consolidated Statement of Cash Flows F-6
Consolidated Statement of Changes
in Stockholders' Equity (Deficit) F-7
Notes to Consolidated Financial Statements F-8
F-1
<PAGE>
GAYLEN R. HANSEN
CERTIFIED PUBLIC ACCOUNTANT
6061 South Willow Drive, Suite 230
Greenwood, Village, Colorado 80111
(303) 770-2595
REPORT OF INDEPENDENT PUBLIC ACCOUNTANT
May 30, 1997
To the Board of Directors
Teleconferencing Systems International, Inc.
Denver, Colorado
I have audited the accompanying consolidated balance sheet of Teleconferencing
Systems International, Inc. and subsidiary (the "Company,") as of June 30, 1995,
and the related consolidated statements of operations, cash flows and changes in
stockholders' equity (deficit) for the year then ended. These financial
statements are the responsibility of the Company's management. My responsibility
is to express an opinion on these financial statements based on my audit.
I conducted my audit in accordance with generally accepted auditing standards.
Those standards require that I 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.
I believe that my audit provides a reasonable basis for my opinion.
In my opinion, the financial statement referred to above present fairly, in all
material respects, the financial position of Teleconferencing Systems
International, Inc. and subsidiary at June 30, 1995, and the results of their
operations and cash flows for the year ended June 30, 1995, in conformity with
generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue operation as a going concern, which contemplates the
realization of assets and liquidation of liabilities in the normal course of
business. As discussed in Note A to the financial statements, the Company has
incurred significant recurring losses, and in fiscal 1995 defaulted on its notes
payable to a financial institution. Subsequent to June 30, 1995, the Company's
activities have been primarily liquidation of operating assets and settlement of
obligations to employees and creditors. These issues raise substantial doubt
about the Company's ability to continue as a going concern. Management's plans
in regard to these matters are also described in Note A. The financial
statements do not include any adjustments to reflect the possible future effect
on the recoverability and classification of of assets or the amounts and
classifications of liabilities that may result from the outcome of this
uncertainty.
/S/ GAYLEN R. HANSEN
- ---------------------
F-2
<PAGE>
INDEPENDENT AUDITOR'S REPORT
----------------------------
To the Stockholders and Board of Directors
Teleconferencing Systems International, Inc.
We have audited the consolidated balance sheet of Teleconferencing Systems
International, Inc. and subsidiary as of June 30, 1994, and the accompanying
related consolidated statements of operations, changes in stockholders' equity
and cash flows for the year then ended. These consolidated financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements based on our
audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit 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 referred to above present
fairly, in all material respects, the financial position of Teleconferencing
Systems International, Inc. and subsidiary as of June 30, 1994, and the results
of their operations and their cash flows for the year then ended, in conformity
with generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern, which contemplates the
realization of assets and liquidation of liabilities in the normal course of
business. As discussed in Note A to the consolidated financial statements, the
Company has incurred recurring losses and is currently not in compliance with
the financial covenants of its notes payable of which the Company is a
co-borrower with an affiliated entity. These issues raise substantial doubt
about the Company's ability to continue as a going concern. Management's plans
in regards to these matters is also discussed in Note A. The consolidated
financial statements do not include any adjustment that might result from the
outcome of these uncertainties.
HEIN + ASSOCIATES LLP
Denver, Colorado
August 26, 1994
F-3
<PAGE>
- --------------------------------------------------------------------------------
TELECONFERENCING SYSTEMS INTERNATIONAL, INC.
Consolidated Balance Sheet
================================================================================
June 30,
1995
- --------------------------------------------------------------------------------
ASSETS
CURRENT ASSETS
Cash $ 47,671
Accounts receivable, less $3,800
allowance for doubtful accounts 39,963
Note receivable from related party 30,500
Inventories 50,000
Prepaid expenses 2,950
- --------------------------------------------------------------------------------
$ 171,084
================================================================================
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES
Note payable to financial institution (in default) $ 138,382
Accounts payable 144,347
Accrued expenses 16,490
- --------------------------------------------------------------------------------
Total current liabilities 299,219
- --------------------------------------------------------------------------------
STOCKHOLDERS' DEFICIT
Common stock, stated value $.001 per share; authorized
100,000,000 shares; issued and
outstanding 41,733,000 shares 41,733
Additional paid-in capital 925,124
Accumulated deficit (1,094,992)
- --------------------------------------------------------------------------------
Total stockholders' deficit (128,135)
- --------------------------------------------------------------------------------
$ 171,084
================================================================================
F-4
See accompanying notes.
<PAGE>
- --------------------------------------------------------------------------------
TELECONFERENCING SYSTEMS INTERNATIONAL, INC.
Consolidated Statement of Operations
================================================================================
Year Ended
June 30,
--------------------------
1995 1994
- --------------------------------------------------------------------------------
NET SALES $ 589,504 $ 753,527
COST OF SALES (429,059) (546,915)
- -----------------------------------------------------------------------------
GROSS PROFIT 160,445 206,612
SELLING, GENERAL AND ADMINISTRATIVE (285,494) (391,529)
- -----------------------------------------------------------------------------
OPERATING LOSS (125,049) (184,917)
- -----------------------------------------------------------------------------
OTHER INCOME (EXPENSE)
Write down of inventory (314,829) -
Management fees, affiliates (44,000) (65,651)
Interest expense (10,935) -
Interest income 2,491 -
Loss on abandonment of equipment (4,952) -
Other income and (expenses), net (1,933) 2,705
Gain on vendor settlement - 64,516
- -----------------------------------------------------------------------------
Total other income (expense) (374,158) 1,570
- -----------------------------------------------------------------------------
NET LOSS $(499,207) $(183,347)
=============================================================================
NET LOSS PER SHARE $ (.01) $ -
=============================================================================
WEIGHTED AVERAGE SHARES OUTSTANDING 41,733,000 41,733,000
=============================================================================
F-5
See accompanying notes.
<PAGE>
<TABLE>
<CAPTION>
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TELECONFERENCING SYSTEMS INTERNATIONAL, INC.
Consolidated Statement of Cash Flows
================================================================================================================
Year Ended
June 30,
------------------------------
1995 1994
------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (499,207) $ (183,347)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization 5,269 5,244
Gain on vendor settlement - (64,516)
Provision for loss on accounts receivable - (2,200)
Loss on abandonment of equipment 4,952 -
Changes in operating assets and liabilities:
Accounts receivable 63,830 15,080
Trade credits due from vendor 41,000 -
Notes and other receivables, related parties (1,973) (33,527)
Inventories 327,309 59,432
Prepaid expenses 19,970 (16,245)
Other - 13,810
Accounts payable and accrued liabilities 33,947 35,899
- ---------------------------------------------------------------------------------------------------------------
Net cash flows used for operating activities (4,903) (170,370)
- ---------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Sale of other assets 2,165 -
Purchase of property and equipment - (1,372)
- ---------------------------------------------------------------------------------------------------------------
Net cash flows from (used for) investing activities 2,165 (1,372)
- ---------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Borrowings on note payable, net 32,014 163,000
Principal payments on note payable and capital lease - (51,632)
- ---------------------------------------------------------------------------------------------------------------
Net cash flows from financing activities 32,014 111,368
- ---------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH 29,276 (60,374)
CASH - BEGINNING OF PERIOD 18,395 78,769
- ---------------------------------------------------------------------------------------------------------------
CASH - END OF PERIOD $ 47,671 $ 18,395
- ---------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DISCLOSURES OF CASH
FLOW INFORMATION
Cash paid for interest $ 10,935 $ 7,774
Note receivable transferred to note
payable co-borrower for reduction in the
Company's portion of note payable - 35,000
Inventory received as part of vendor settlement
agreement - 23,516
F-6
See accompanying notes.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
TELECONFERENCING SYSTEMS INTERNATIONAL, INC.
Consolidated Statement of Changes in Stockholders' Equity (Deficit)
===================================================================================================================
Common Stock Additional
------------------------ Paid-in Accumulated
Shares Amount Capital Deficit Total
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balances, July 1, 1993 41,733,000 $41,733 $925,124 $ (412,438) $ 554,419
Net loss - - - (183,347) (183,347)
- -------------------------------------------------------------------------------------------------------------------
Balance at June 30, 1994 41,733,000 41,733 925,124 (595,785) 371,072
Net loss - - - (499,207) (499,207)
- -------------------------------------------------------------------------------------------------------------------
Balance at June 30, 1995 41,733,000 $41,733 $925,124 $(1,094,992) $ (128,135)
===================================================================================================================
F-7
</TABLE>
<PAGE>
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TELECONFERENCING SYSTEMS INTERNATIONAL, INC.
Notes to Consolidated Financial Statements
================================================================================
Note A - Summary of Significant Accounting Policies
Organization
- ------------
Teleconferencing Systems International, Inc. (TSI, or the "Company,") was
incorporated on December 19, 1983. Through June 30, 1995, TSI's operations
included the design, manufacture and marketing of an audio teleconferencing
product as well as the distribution of certain non-manufactured conferencers. On
June 30, 1995, the Company discontinued these activities except as discussed in
the following paragraph.
Continued Operations
- --------------------
The accompanying financial statements have been prepared assuming that the
Company will continue operation as a going concern, which contemplates the
realization of assets and liquidation of liabilities in the normal course of
business. The Company has incurred significant recurring losses, and in fiscal
1995 defaulted on its notes payable to a financial institution (see Note C). As
a result, on April 21, 1995, the financial institution notified the Company that
if the business was not sold, or a plan for an orderly liquidation of the assets
not submitted by May 31, 1995, it would exercise its rights or remedies
according to the loan documents. Accordingly, the Company has taken steps and
adopted a plan to liquidate its assets in order to repay the obligations owed
the financial institution. During fiscal 1996, the obligations owed the
financial institution were repaid from proceeds collected on outstanding
accounts receivable and other assets. Subsequent to June 30, 1995, the Company's
activities have been primarily liquidation of operating assets and settlement of
obligations to employees and creditors.
The Company's ability to continue as a going concern is dependent upon several
factors, including identification of a new business activity, achieving and
maintaining profitable operations from engaging in the new business activity,
and obtaining sufficient significant additional long-term debt and/or equity
financing to meet its obligations.
Principles of Consolidation
- ---------------------------
During 1992, Alpha Communications Service Company (Alpha), a wholly owned
subsidiary, was formed, but is currently inactive. The consolidated financial
statements include the accounts of TSI and Alpha. All intercompany transactions
have been eliminated.
Use of Estimates
- ----------------
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 inevitably will differ from those estimates, and such differences
may be material to the financial statements.
F-8
<PAGE>
- --------------------------------------------------------------------------------
TELECONFERENCING SYSTEMS INTERNATIONAL, INC.
Notes to Consolidated Financial Statements
================================================================================
Inventories
- -----------
Inventories are stated at the lower of cost determined by the first-in,
first-out method or market. A valuation reserve of $219,829 has been provided as
of June 30, 1995 as a result of the inability of the Company to sell its
products in the ordinary course of business.
Property and Equipment
- ----------------------
Property and equipment are stated at cost, however, during the year ended June
30, 1995, all such items were sold, retired, or otherwise disposed of.
Depreciation is computed on the straight-line method over an estimated useful
life of five years.
Research and Development Costs
- ------------------------------
Research and development costs are charged to operations in the period incurred
and totaled none and $12,559 for the fiscal years 1995 and 1994, respectively.
Net Loss Per Common Share
- -------------------------
Net loss per common share is based on the weighted average number of common
shares outstanding during the period.
Income Taxes
- ------------
The Company accounts for income taxes under the liability method, whereby
current and deferred tax assets and liabilities are determined based on tax
rates and laws enacted as of the balance sheet date applied to temporary
differences between the book and tax basis of assets and liabilities. Deferred
tax expense represents the change in the deferred tax asset/liability balance.
Note B - Related Party Transactions
As of June 30, 1995, the Company has a $30,500 note receivable, due from an
entity 99% owned by a stockholder/director/officer of the Company. The note
accrues interest at one percent above prime.
The Company paid management fees, salaries and royalties to an entity owned by a
stockholder/director/officer of the Company totaling $44,000 and $65,651 for
fiscal 1995 and 1994, respectively.
Note C - Notes Payable
The Company is a co-borrower on a note payable to a financial institution with
interest at 8.5% through October 1998, thereafter with interest at prime plus
2.5%, until maturity in November 2000. Principal and interest are payable in
monthly installments of $1,786. The note is 85% guaranteed by the Small Business
Administration and collateralized by the general assets of each company and
personally guaranteed by a stockholder/director/officer of the Company. The note
payable of $138,382 represents the Company's portion of a joint loan with an
entity owned by a stockholder/director/officer. Both companies are jointly and
F-9
<PAGE>
- --------------------------------------------------------------------------------
TELECONFERENCING SYSTEMS INTERNATIONAL, INC.
Notes to Consolidated Financial Statements
================================================================================
severally liable for the entire loan balance, which totals $186,279.as of June
30, 1995. By agreement between the co-borrowers as of June 30, 1995, the Company
is directly liable for only $138,382 of the outstanding note balance.
Furthermore, the Company is also responsible for making all interest payments,
which accrue, on the Company's share of the note payable until maturity. During
the first quarter of fiscal 1996, the companies paid the note in full.
The Company has a $300,000 line-of-credit with a financial institution, with
interest at prime plus 2.25%, maturing November 1, 1994. Either the Company may
use the line-of credit or an entity owned by a stockholder/director/officer of
the Company. The line is 85% guaranteed by the Small Business Administration and
collateralized by the general assets of each company and personally guaranteed
by a stockholder/director/officer of the Company. The Company had no outstanding
borrowings under the line at June 30, 1995, however, the co-borrower had
$329,824 under the line. During the first quarter of fiscal 1996, the
co-borrower paid the note in full.
The line-of credit and the note payable both contain certain representations and
covenants, as well as requirements that certain minimal financial ratios be
maintained. These include a requirement that the Company maintain tangible net
worth of at least $350,000 and a debt to tangible net worth ration of
one-to-one. Furthermore, the Company's co-borrower is subject to other financial
ratio covenants. In addition, both companies are restricted to incurring a
maximum of $50,000 in capital expenditures combined in any year. At June 30,
1995, the Company was not in compliance with either of its financial ratio
covenants. As a result, the financial institution has demanded immediate payment
on the note payable. Accordingly, these debts were in default as of June 30,
1995, but as noted above were repaid in fiscal 1996.
Note D - Commitments
During fiscal 1995, the Company rented its facilities on a month-to-month basis.
Rent expense was $38,623 and $41,567 for the years ended June 30, 1995 and 1994,
respectively.
In 1991, the Company entered into a commitment to purchase approximately
$149,000 in distributable product from a vendor over an indefinite time period.
The agreement also allows the Company to cancel the remaining purchase for a fee
based upon the amount of purchase commitments unused. At June 30, 1995, the
Company had approximately $71,200 in purchase commitments remaining under this
agreement.
F-10
<PAGE>
- --------------------------------------------------------------------------------
TELECONFERENCING SYSTEMS INTERNATIONAL, INC.
Notes to Consolidated Financial Statements
================================================================================
Note E - Income Taxes
As of June 30, 1995, the Company had net operating loss carryforwards totaling
approximately $864,000 that may be offset against future taxable income, if any.
These loss carryforwards expire in varying amounts from 1998 through 2010.
Furthermore, use of the loss carryforwards is limited by certain changes in the
Company's ownership.
A tax benefit has not been reported in the accompanying financial statements for
the operating loss carryforwards because the Company is uncertain as to the
likelihood of utilization. Accordingly, the approximate tax benefit of $320,000
of the loss carryforward has been offset by a valuation allowance of the same
amount.
F-11
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1995
<PERIOD-END> JUN-30-1995
<CASH> 47,671
<SECURITIES> 0
<RECEIVABLES> 39,963
<ALLOWANCES> 3,800
<INVENTORY> 50,000
<CURRENT-ASSETS> 171,084
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 171,084
<CURRENT-LIABILITIES> 299,219
<BONDS> 0
0
0
<COMMON> 41,733
<OTHER-SE> (169,868)
<TOTAL-LIABILITY-AND-EQUITY> 171,084
<SALES> 589,504
<TOTAL-REVENUES> 589,504
<CGS> 429,059
<TOTAL-COSTS> 285,494
<OTHER-EXPENSES> 374,158
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 10,935
<INCOME-PRETAX> (499,207)
<INCOME-TAX> 0
<INCOME-CONTINUING> (499,207)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (499,207)
<EPS-PRIMARY> (.01)
<EPS-DILUTED> 0
</TABLE>
