UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 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): June 14, 2000
VDC COMMUNICATIONS, INC.
------------------------
(Exact name of registrant as specified in its charter)
Delaware 001-14281 061524454
------------------ ----------------------- ----------------------
(State or other (Commission File No.) (IRS Employer
jurisdiction of Identification No.)
incorporation)
75 Holly Hill Lane
Greenwich, Connecticut 06830
----------------------------
(Address of principal executive office)
(203) 869-5100
--------------
(Registrant's telephone number, including area code)
Not Applicable
--------------
(Former name or former address, if changed since last report.)
<PAGE>
General Explanation
The purpose of this Report is to amend the registrant's Current Report
on Form 8-K dated June 14, 2000 relative to the acquisition of Rare Telephony,
Inc. This Report amends the information provided under Item 7(a) and 7(b).
Item 7. Financial Statements and Exhibits
(a) Financial statements of business acquired.
Rare Telephony, Inc.
Report of Independent Certified Public Accountants
Consolidated Balance Sheet as of June 30, 2000
Consolidated Statement of Operations for the year ended June
30, 2000
Consolidated Statement of Stockholders' Deficit for the year
ended June 30, 2000
Consolidated Statement of Cash Flows for the year ended June
30, 2000
Notes to Consolidated Financial Statements
(b) Pro forma financial information.
(c) Exhibits (referenced to Item 601 of Regulation S-K).
<TABLE>
<CAPTION>
Exhibit
Number Title
------ -----
<S> <C>
2.1 Agreement and Plan of Merger dated May 25, 2000 by and among VDC Communications, Inc., Voice
& Data Communications (Latin America), Inc., Rare Telephony, Inc., and the holders of all of
the outstanding common stock of Rare Telephony, Inc.
2.2 Amendment to Agreement and Plan of Merger dated June 14, 2000
2.3 Certificate of Merger of Rare Telephony, Inc. into Voice & Data Communications (Latin
America), Inc.
2.4 Articles of Merger of Rare Telephony, Inc. into Voice & Data Communications (Latin America),
Inc.
10.37 Escrow Agreement, dated May 25, 2000, by and among VDC Communications, Inc., Voice & Data
Communications (Latin America), Inc., the shareholders of Rare Telephony, Inc., and Buchanan
Ingersoll Professional Corporation
<PAGE>
10.38 Form of Registration Rights Agreement
10.39 Form of Executive Employment Agreement
10.40 Form of Employment Agreement
10.41 Independent Contractor Agreement, dated May 25, 2000, by and among Peter J. Salzano and Voice
& Data Communications (Latin America), Inc.
10.42 License Agreement, dated June 14, 2000, by and between Peter J. Salzano and Free dot
Calling.com, Inc.
10.43 Network Agreement, dated May 25, 2000, by and among Network Consulting Group, Inc. and VDC
Communications, Inc.
10.44 Funding Agreement, dated June 14, 2000, by and between Voice & Data Communications (Latin
America), Inc. and VDC Communications, Inc.
10.45 Promissory Note, dated June 23, 2000, made by Rare Telephony, Inc. in favor of Peter J.
Salzano
</TABLE>
<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 thereunto duly authorized.
Dated: August 25, 2000 VDC COMMUNICATIONS, INC.
By: /s/ Frederick A. Moran
---------------------------
Frederick A. Moran
Chairman of the Board and
Chief Executive Officer
<PAGE>
Financial Statements Provided Under Item 7(a)
Report of Independent Certified Public Accountants
Board of Directors and Stockholders of
Rare Telephony, Inc. and subsidiaries
Newark, New Jersey
We have audited the accompanying consolidated balance sheet of Rare Telephony,
Inc. and subsidiaries as of June 30, 2000 and the related consolidated
statements of operations, stockholders' deficit, and cash flows for the period
from July 1, 1999 (inception) to June 30, 2000. 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 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 Rare Telephony, Inc.
at June 30, 2000, and the results of its operations and its cash flows for the
period from July 1, 1999 (inception) to June 30, 2000 in conformity with
generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 2 to the
financial statements, the Company has suffered significant losses from
operations and has a net capital deficiency. Furthermore, as discussed in Note
1, the Company was merged into a VDC Communications, Inc. ("VDC") subsidiary as
of June 30, 2000. The acquisition by VDC does not eliminate this uncertainty.
These matters 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 2. The financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
/s/ BDO Seidman, LLP
BDO Seidman, LLP
Valhalla, New York
August 18, 2000
<PAGE>
RARE TELEPHONY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
June 30,
2000
----
<S> <C>
Assets
Current:
Cash and cash equivalents $ 970
Accounts receivable 119,331
---------------------
Total current assets 120,301
Property and equipment, less accumulated depreciation 744,664
Product development costs, net 265,108
Other assets 130,381
---------------------
Total assets $ 1,260,454
=====================
Liabilities and Stockholders' Deficit
Current:
Accounts payable and accrued expenses $ 942,319
Unearned revenue 463,585
Related Party payable 29,514
Related party note payable-current 13,766
Current portion of long term debt 57,724
---------------------
Total current liabilities 1,506,908
Long-term debt 137,843
Related party note payable-long term 1,186,234
---------------------
Total liabilities 2,830,985
Commitment and Contingencies
Stockholders' Deficit:
Common stock, no par value, 25,000 shares
authorized, issued and outstanding -
Additional paid-in capital 1,884,398
Accumulated deficit (3,454,929)
---------------------
Total stockholders' equity (1,570,531)
---------------------
Total liabilities and stockholders' deficit $ 1,260,454
=====================
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
RARE TELEPHONY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
Period from July 1, 1999
(inception) to June 30, 2000
----------------------------
<S> <C>
Revenue $1,468,984
Operating expenses:
Costs of services 2,642,639
Selling, general and administrative expenses 1,963,258
Non-cash compensation expense 296,416
-----------------------
Total operating expenses 4,902,313
-----------------------
Operating loss (3,433,329)
Other income (expense) (21,600)
-----------------------
Net loss $ (3,454,929)
-----------------------
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
RARE TELEPHONY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLERS' DEFICIT
<TABLE>
<CAPTION>
Common Stock Paid in Capital Accumulated Deficit Total
------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance - July 1, 1999 $ - $ - $ - $ -
Capital contribution - 1,884,398 - $ 1,884,398
Net loss - - (3,454,929) (3,454,929)
------------------------------------------------------------------------------------
Balance - June 30, 2000 $ - $ 1,884,398 $ (3,454,929) $(1,570,531)
====================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
RARE TELEPHONY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Period from July 1, 1999 (Inception)
to June 30, 2000
----------------
<S> <C>
Cash flows from operating activities:
Net loss $(3,454,929)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Non-cash compensation expense 296,416
Depreciation and amortization 203,442
Changes in operating assets and liabilities:
Accounts receivable (119,331)
Other assets (200,171)
Accounts payable and accrued expenses 942,318
Related party payable 29,514
Unearned revenue 463,585
----------------
Net cash used by operating activities (1,839,156)
Cash flows from investing activities:
Fixed asset acquisitions (4,664)
Product development costs (307,868)
----------------
Net cash flows used in investing activities (312,532)
Cash flows from financing activities:
Borrowings under long term debt 200,000
Repayments of long term debt (4,433)
Borrowings from related party 1,200,000
Capital Contributions 757,091
----------------
Net cash flows provided by financing activities 2,152,658
----------------
Net increase in cash and cash equivalents 970
Cash and cash equivalents, beginning of period -
----------------
Cash and cash equivalents, end of period $ 970
================
See accompanying notes to consolidated financial statements.
Supplemental schedule of noncash investing and financing activities:
Fixed assets contributed by stockholder $ 830,891
Services constituting contributed capital $ 296,416
</TABLE>
<PAGE>
Rare Telephony Inc., and Subsidiaries
Notes to consolidated financial statements
Summary of Significant Accounting Policies
(a) Description of Business and Organization
Rare Telephony, Inc. (the "Company") was a privately held corporation through
June 2000. The Company merged with and into a wholly-owned subsidiary of VDC
Communications, Inc. ("VDC") on June 30, 2000. The Company commenced operations
in July 1999. The Company operates through its wholly owned subsidiaries, Cash
Back Rebates LD.com., a Delaware corporation and Free dot Calling.com, Inc, a
Nevada corporation, which is not yet operational. The Company is a pre-paid long
distance provider that obtains customers through telemarketing sales. In the
future, through Free dot Calling.com, Inc., the Company anticipates offering its
services over the Internet through a proprietary E-commerce platform.
(b) Principles of Consolidation
The consolidated financial statements include the accounts of the Company and
its wholly-owned subsidiaries. All intercompany accounts and transactions have
been eliminated.
(c) Revenue Recognition
Revenues from retail long distance are recognized when services are provided.
Customer prepayments are recorded as unearned revenue until earned.
(d) Cost of Services
Cost of services include network costs that consist of access, transport, and
termination costs. These costs also include telemarketing salaries, depreciation
and overhead attributable to operations. Such costs are recognized when incurred
in connection with the provision of telecommunications services.
(e) Accounts Receivable
After confirming customer orders in writing, the Company waits seven days to
deposit new customer prepayments. As such, the Company records the last seven
days sales in a reporting period as accounts receivable.
(f) Cash and Cash Equivalents
For purposes of the statement of cash flows, the Company considers all liquid
investments with an original maturity of three months or less to be cash
equivalents. The carrying amount reported in the accompanying balance sheet
approximates fair market value.
<PAGE>
(g) Property and Equipment
Property and equipment are carried at cost. Replacements and betterments are
capitalized. Repairs and maintenance are charged to operations. Depreciation and
amortization of property and equipment are computed using the straight-line
method over the following estimated useful lives:
operating equipment 5 years
leasehold improvements life of lease
furniture and equipment 3-5 years
For income tax purposes, depreciation is computed using statutory recovery
methods.
(h) Product Development Costs
The Company capitalizes product development costs incurred for the production of
computer software used in the billing process and other related product
development costs. Capitalized costs consist of the direct labor involved from
the point of technological feasibility until the product was generally
available. The Company amortizes capitalized costs on a straight line basis over
the estimated useful life of the asset, which is estimated to be three years.
Capitalized product development costs were $307,868 less amortization of $42,760
at June 30, 2000.
(i) Intangible Assets
Intangible assets consist of costs of obtaining telecommunications tariffs in
various states throughout the United States. These assets are amortized on a
straight-line basis over a period of 2 years. Intangible assets of $159,818 less
accumulated amortization of $73,250 are included in other assets at June 30,
2000.
(j) 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.
(k) Financial Instruments
The carrying amount of financial instruments including cash and cash
equivalents, accounts receivable and accounts payable approximated fair value at
June 30, 2000 because of the relatively short maturity of these financial
instruments. Management estimates that the fair values of long term debt and
related party long term debt approximate fair value at June 30, 2000 based on
their terms and interest rates.
<PAGE>
(l) Impairment of Long-Lived Assets
The Company periodically reviews the values assigned to long-lived assets,
including property and equipment and intangibles, to determine if any
impairments are other than temporary. Management believes that the long-lived
assets in the accompanying balance sheet are appropriately valued.
(m) Concentration of Suppliers of Telecommunications Services
The Company purchased virtually all its long distance services from Qwest
Communications, Inc.
2. Going Concern
The Company's auditors have raised the issue that the Company may not be able to
continue as a going concern as a result of the Company's lack of profits. The
Company has used substantial amounts of working capital in its operations and
has sustained significant operating losses. As of June 30, 2000, current
liabilities exceeded current assets by approximately $1.4 million. Management's
plan is for VDC to continue to fund the Company's operations as it has in the
past. There can be no assurances that VDC will provide the working capital
necessary to sustain operations. In view of these matters, continued operations
of the Company is dependent upon VDC and/or the success of future operations to
meet the Company's financing requirements.
3. Related Party Transactions
On June 14, 2000, the Company entered into a loan agreement to pay $100,000 to
Network Consulting Group ("Network") with interest at 8% per annum (the "Note").
The Note will be paid in monthly installments of $3,134 commencing on December
1, 2000 and continue thereafter on the first day of each successive month until
November 1, 2003 when the entire outstanding principal balance and any unpaid
interest is due.
During April through June 2000, VDC loaned the Company a total of $1,100,000 at
8% interest per annum. The loans are due on June 14, 2004.
Aggregate principal maturities on related party notes payable are as follows:
<TABLE>
<CAPTION>
Year ending June 30,
<S> <C>
2001 $ 13,766
2002 31,908
2003 31,957
2004 1,122,369
-----------------
Total $1,200,000
</TABLE>
<PAGE>
Network paid the Company $200,000 for consulting services during the year ended
June 30, 2000. The consulting services are recorded as revenue in the statement
of operations. The president of Network was, prior to the merger, a significant
shareholder of the Company.
Shareholder Obligations
Included in property and equipment and additional paid in capital are assets
contributed (at predecessor's cost) by a Company shareholder, prior to the
merger, totaling approximately $681,000. The assets were financed via capital
leases that are the obligations of the shareholder. The equipment serves as
collateral for the capital lease obligations. The accumulated depreciation
attributable to this equipment was $65,892 at June 30, 2000.
4. Debt
In February 2000, an independent third party loaned the Company $200,000 at 15%
per annum. The loan is due in monthly installments of $6,933.07 per month
commencing in June 2000 with the final payment due May 2003.
Aggregate principal maturities on long term debt are as follows:
<TABLE>
<CAPTION>
Year ending June 30,
<S> <C>
2001 $ 57,724
2002 67,003
2003 70,840
-----------------
Total $ 195,567
</TABLE>
5. Property and Equipment
<TABLE>
<CAPTION>
Major classes of property and equipment consist of the following:
<S> <C>
Operating equipment $ 282,112
Office equipment 412,786
Furniture & fixtures 140,659
------------
835,557
Accumulated depreciation-cost of services 29,829
Accumulated depreciation-SG&A 61,064
-------------
Property and equipment, net of accumulated depreciation $ 744,664
</TABLE>
During the year ended June 30, 2000, the Company wrote off $17,436 attributable
to the abandonment of leasehold improvements at its former location.
6. Income Taxes
The Company accounts for income taxes in accordance with SFAS No. 109,
"Accounting for Income Taxes," under which deferred assets and liabilities are
provided on differences between financial reporting and taxable income using
enacted tax rates. Deferred income tax expenses or credits are based on the
changes in deferred income tax assets or liabilities from period to period.
<PAGE>
Under SFAS No. 109, deferred tax assets may be recognized for temporary
differences that will result in deductible amounts in future periods. A
valuation allowance is recognized if, on the weight of available evidence, it is
more likely than not that some portion or all of the deferred tax asset will not
be realized.
The Company had deferred tax assets of approximately $1,358,000 at June 30,
2000. The deferred tax assets are primarily attributable to net operating losses
("NOLS") and are subject to annual limitations of approximately $190,000 due to
the merger with the VDC subsidiary. A valuation allowance has been established
for the entire amount of the deferred tax assets.
Deferred income taxes result primarily from the net operating loss carryforwards
which expire through 2019.
Reconciliation of the Company's actual tax rate to the U.S. Federal Statutory
rate for the year ended June 30, 2000 is as follows:
<TABLE>
<CAPTION>
Income tax rates
<S> <C>
-Statutory U.S. Federal rate (34%)
-State rate (9%)
-Valuation allowance 43%
---
Total -%
</TABLE>
7. Non-cash compensation
Various employees of the Company contributed services at below market rates to
the Company during the year ended June 30, 2000. In exchange for those services,
the employees received an ownership interest in the Company of approximately
16%. This ownership interest has been recorded as additional paid in capital
with a corresponding charge to non-cash compensation expense. The value of these
services was estimated based on the relative ownership interests of shareholders
who contributed cash or equipment to those providing services.
8. Commitments and Contingencies
Operating Leases
<TABLE>
<CAPTION>
The Company leases equipment and office space under noncancellable operating
leases. Future minimum lease payments are as follows:
<S> <C>
Year ending June 30,
2001 $ 132,000
2002 110,000
-------
$ 242,000
</TABLE>
Rent expense for the year ended June 30, 2000 was approximately $64,000.
<PAGE>
Pro Forma Financial Information Provided Under Item 7 (b)
Unaudited Pro Forma Consolidated Financial Statements
The following unaudited pro forma consolidated balance sheet reflects the effect
of the acquisition of Rare Telephony, Inc. ("Rare") as of June 30, 2000. The
unaudited pro forma consolidated statement of operations for the year ended June
30, 2000 combines historical statements of operations for VDC Communications,
Inc. (the "Company") and the acquired company, Rare, as if the acquisition had
occurred on July 1, 1999.
The detailed assumptions used to prepare the unaudited pro forma consolidated
financial information are contained herein. The unaudited pro forma consolidated
financial information reflects the use of the purchase method of accounting for
the acquisition.
The unaudited pro forma financial information assumes the acquisition was
consummated through the issuance of 1,551,020 shares of common stock of which
531,222 shares of common stock are subject to release based on certain Rare
employees rendering post combination services and/or satisfying certain
contractual criteria. The release of 531,222 shares of common stock, if and when
it occurs, will be charged to compensation expense at the fair market value of
the common stock on the date of release. Subject to certain additional terms and
conditions set forth in the applicable escrow agreement, if certain Rare
employees and a consultant are not terminated for cause, do not resign from
employment or service and do not breach a material term of his employment or
consulting contract, 180,616, 138,118, and 212,488 shares of common stock will
be released on June 14, 2001, 2002, and 2003, respectively. 1,019,798 shares of
common stock, valued at the June 14, 2000 closing market price of $1.5625 per
share, were used to determine the purchase price. The purchase price also
includes an investment banking fee of 81,633 shares of common stock at $1.5625
per share. The pro forma weighted average number of common shares outstanding
assumes the shares issued in connection with the Rare acquisition were
outstanding for the entire period.
The unaudited pro forma data are not necessarily indicative of the results of
operations which would have actually been reported had the transaction been
consummated at the date mentioned above or which may be reported in the future.
The unaudited pro forma data should be read in conjunction with the notes to the
unaudited pro forma consolidated historical financial information.
<PAGE>
VDC Communications, Inc. and Subsidiaries
Pro Forma Consolidated Balance Sheet
<TABLE>
<CAPTION>
June 30, 2000
(Unaudited)
<S> <C>
Assets
(a)
Current: Pro-forma
---------
Cash and cash equivalents $ 772,109
Marketable securities 51,212
Accounts receivable, net of allowance for doubtful accounts 935,217
-----------
Total current assets 1,758,538
Property and equipment, less accumulated depreciation 4,286,706
Product development costs 265,108
Goodwill 3,291,517
Advances 70,000
Investment in MCC 140,000
Other assets 513,726
-----------
Total assets $ 10,325,595
Liabilities and Stockholders' Equity
Accounts payable and accrued expenses $ 3,739,120
Unearned Revenue 463,585
Related party note payable-current 13,766
Current portion of long term debt 57,724
Current portion of capitalized lease obligations 178,341
-----------
Total current liabilities 4,452,536
Long-term portion of long term debt 137,843
Related party note payable-long-term 86,234
Long-term portion of capitalized lease obligations 521,482
-----------
Total liabilities 5,198,095
Common stock 2,520
Additional paid-in capital 71,556,304
Accumulated deficit (65,904,574)
Treasury stock (164,175)
Accumulated comprehensive income (loss) (362,575)
-----------
Total stockholders' equity 5,127,500
-----------
Total liabilities and stockholders' equity $ 10,325,595
-----------
</TABLE>
See notes to pro forma financial statements (unaudited)
(a) The pro forma consolidated balance sheet reflected above includes VDC
Communications, Inc. and Rare Telephony, Inc. Rare Telephony merged with and
into a wholly-owned VDC Communications, Inc. subsidiary on June 30, 2000. An
audit is currently being performed on VDC Communications, Inc.'s financial
statements and is expected to be completed shortly.
<PAGE>
VDC Communications, Inc. and Subsidiaries
Pro Forma Consolidated Statement of Operations
(Unaudited)
<TABLE>
<CAPTION>
Year ended June 30, 2000
(a)
VDC Rare Adjustments Pro-forma
--- ---- ----------- ---------
(unaudited)
<S> <C> <C> <C> <C> <C>
Revenue $ 8,528,693 $ 1,468,984 - $ 9,997,677
Operating Expenses:
Cost of services 8,721,649 2,642,639 - 11,364,288
Selling, general & administrative 2,482,457 1,963,258 1,097,172 5,542,887
Non-cash compensation expense - 296,416 282,213 578,629
------- ------- -------
Total operating expenses 11,204,106 4,902,313 - 17,485,804
Operating income (loss) (2,675,413) (3,433,329) (7,488,127)
Loss on impairment (2,260,000) - - (2,260,000)
Other income (expenses) (311,018) (21,600) (332,618)
----------------------------------- -----------------
Total other income (expense) (2,571,018) (21,600) (2,592,618)
----------------------------------- -----------------
Net income (loss) $ (5,246,431) $ (3,454,929) $(10,080,745)
----------------------------------- -----------------
Net loss per common share-basic and diluted $ (0.26) $ (0.47)
-----------------------------------
-----------------
Weighted Average number of shares outstanding 20,527,971 21,629,402
----------------------------------- -----------------
</TABLE>
See notes to pro forma financial statements (unaudited)
(a) An audit is currently being performed on VDC Communications, Inc.'s
financial statements and is expected to be completed shortly.
<PAGE>
VDC Communications, Inc. and Subsidiaries
Notes to Pro-Forma Consolidated Financial Statements (Unaudited)
Note A - The pro-forma adjustments to the consolidated balance sheet are as
follows:
To reflect the acquisition of Rare. The components of the purchase
price and its allocation of the purchase price on the basis of the fair values
of the assets acquired and to the assets and liabilities of Rare are as follows:
<TABLE>
<CAPTION>
(1) Components of purchase price:
<S> <C>
Purchase price 1,720,986
Fair value of net liabilities acquired (1,570,531)
-----------
Costs in excess of assets acquired $3,291,517
</TABLE>
<TABLE>
<CAPTION>
(2) Elimination of intercompany accounts:
Rare:
<S> <C>
Related party note payable $(1,100,000)
Related party payable (29,514)
Accounts payable and accruals (8,900)
VDC:
Related party - note receivable 1,100,000
Related party receivable 29,514
Other assets 8,900
-------------
$ ------
</TABLE>
(3) Consolidating Balance Sheets of VDC and Rare at June 30, 2000
<TABLE>
<CAPTION>
Assets
VDC Rare Adjustments Pro-forma
--- ---- ----------- ---------
<S> <C> <C> <C> <C> <C>
Cash and cash equivalents 771,139 970 772,109
Marketable securities 51,212 51,212
Accounts receivable, net of allowance for doubtful accounts 815,886 119,331 935,217
-------------------------------- ----------------
Total current assets 1,638,237 120,301 1,758,538
Property and equipment, less accumulated depreciation 3,542,042 744,664 4,286,706
Investment in affiliate 1,720,986 (1,720,986) -
Goodwill 3,291,517 3,291,517
Investment in MCC 140,000 140,000
Other assets 465,245 395,489 (8,900) 851,834
Related Party receivable 29,514 (29,514) -
Related Party - note receivable 1,100,000 (1,100,000) -
-------------------------------- ----------------
Total assets 8,636,024 1,260,454 10,328,595
Liabilities and Stockholders' Equity
Accounts payable and accrued expenses 2,805,701 942,319 (8,900) 3,739,120
Unearned Revenue 463,585 463,585
<PAGE>
Related party payable 29,514 (29,514) -
Related party note payable-current 13,766 13,766
Current portion of long term debt 57,724 57,724
Current portion of capitalized lease obligations 178,341 178,341
-------------------------------- ----------------
Total current liabilities 2,984,042 1,506,908 4,452,536
Long-term portion of long term debt 137,843 137,843
Related party note payable-long-term 1,186,234 (1,100,000) 86,234
Long-term portion of capitalized lease obligations 521,482 521,482
-------------------------------- ----------------
Total liabilities 3,505,524 2,830,985 5,198,095
Common stock 2,520 2,520
Additional paid-in capital 71,556,304 1,884,398 (1,884,398) 71,556,304
Accumulated deficit (65,904,574) (3,454,929) 3,454,929 (65,904,574)
Treasury stock (164,175) (164,175)
Accumulated comprehensive income (loss) (362,575) (362,575)
-------------------------------- ----------------
Total stockholders' equity 5,127,500 (1,570,531) 5,127,500
-------------------------------- ----------------
Total liabilities and stockholders' equity 8,633,024 1,260,454 10,325,595
</TABLE>
Note B - The pro-forma adjustments to the consolidated statement of operations
are as follows:
<TABLE>
<CAPTION>
(1) Goodwill which is estimated to be amortized over three years
<S> <C>
Amortization expense $1,097,172
----------
</TABLE>
<TABLE>
<CAPTION>
(2) Non-cash compensation expense attributable to the release of 180,616
shares of common stock valued at $1.5625 per share released after one year of
post combination services.
<S> <C>
Non-cash compensation expense $282,213
--------
</TABLE>
<TABLE>
<CAPTION>
(3) Elimination of intercompany interest:
Rare:
<S> <C>
Interest expense $ (8,900)
VDC:
Interest income 8,900
------------
$ ----
</TABLE>
