<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
AMENDMENT NO. 1
TO
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
DATE OF REPORT: JULY 30, 1999
--------------
(DATE OF EARLIEST EVENT REPORTED)
PROGRESSIVE TELECOMMUNICATIONS CORPORATION
------------------------------------------
EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER
NEVADA 0-15413 95-3480640
------ ------- ----------
STATE OF OTHER JURISDICTION OF COMMISSION FILE NO. I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION ID NO.
601 CLEVELAND STREET, SUITE 930, CLEARWATER, FLORIDA 33755
----------------------------------------------------------
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (727) 466-9898
---------------------
MARQUEE ENTERTAINMENT, INC.
6404 WILSHIRE BOULEVARD, SUITE 550, LOS ANGELES, CALIFORNIA 90048
-----------------------------------------------------------------
(FORMER NAME OR FORMER ADDRESS IF CHANGED SINCE LAST REPORT)
<PAGE> 2
Item 1. CHANGES IN CONTROL OF THE REGISTRANT
On July 30, 1999, as a direct result of the transactions referred to
in Item 2 hereof, Barry Shevlin, Dr. Howard Tackett, Tom Chubokas and James C.
Watson, principal shareholders of Progressive Telecommunications Corporation
became "control persons" of the Registrant as that term is defined in the
Securities Act of 1933, as amended. Messrs. Shevlin, Tackett, Chubokas and
Watson status as control person arises from the issuance of 7,380,000 shares of
the Registrant's Common Stock (approximately 82% of the total issued and
outstanding common shares to the shareholders of Progressive Telecommunications
Corporation. Additionally, with the consummation of the transactions referred
to in Item 2, Harold Brown, Harvey Seslowsky and David DeShay resigned as
directors of the Registrant. Barry Shevlin, Dr. Howard Tackett, James C. Watson
and Tom Chubokas were elected directors in their place and stead. Mr. Shevlin
was appointed Chief Executive Officer and Chairman of the Board of Registrant,
Mr. Chubokas was appointed President and Chief Operating Officer, Mr. Watson
was appointed Executive Vice President and Chief Technology Officer and Dr.
Tackett was appointed Vice President, Strategic Support.
Mr. Shevlin founded Progressive in 1996 and is its Chief Executive
Officer. Prior to founding Progressive, from 1993 to 1996, he was a contractor
to Time-Warner, engaged in marketing satellite services in Florida.
Mr. Chubokas was a co-founder and officer of CCC Communications Inc.
which became a majority owned subsidiary of Progressive at the end of 1998.
From 1990 to 1997, he was founder and President of Communications Group of
America, Cape Coral, Florida, a nationwide independent telecommunications
services sales organization.
Mr. Watson was a co-founder and officer of CCC Communications Inc.
From 1992 to 1997 Mr. Watson owned a telecommunications consulting firm,
specializing in the technology, operational and regulatory issues affecting
telecommunications carriers.
Dr. Tackett became an officer and director of Progressive in 1997.
From 1980 to 1997 Dr. Tackett was the CEO of Tackett Chiropractic Clinics and
is a member of the Board of Directors of Managed Care of Virginia.
Item 2. ACQUISITION AND DISPOSITION OF ASSETS
On July 30, 1999, the Registrant, completed the first part of its
acquisition of all of the shares of Progressive Telecommunications Corporation.
The agreement which was approved by both companies boards, provided for the
transaction to be two tiered. Eighteen Shareholders owning in excess of 82% of
Progressive exchange their shares for approximately 7,380,000 shares of the
Registrant's post-split shares (discussed below). Of the eighteen shareholders,
four including Messrs. Shevlin, Chubokas and Watson as a result of the
aforementioned exchange of stock became owners of record or beneficially of 5%
or more of the issued and outstanding capital shares of the Registrant. As a
condition to consummating the transaction, the Registrant, pursuant to
shareholder consent, amended its Certificate of Incorporation so as to increase
its
<PAGE> 3
authorized common shares from 25,000,000 to 50,000,000, authorize a 1 for 5
reverse split, changed its name to Progressive Telecommunications Corporation
and reduced its par value from $.04 to $.001.
Effective with the closing, Harold Brown, the Registrant's former
President, CEO and Chairman, forgave his unpaid salary (approximately $400,000
as of March 31, 1999) through the date of closing agreed to the cancellation of
his employment contract in exchange for the Registrant's film library. Mr.
Brown also converted his 8% Convertible Debenture in the amount of $301,638
into 241,310 shares of the Registrant's post-split common stock.
Progressive Telecommunications is a certified reseller of local, long
distance and international telecommunication services, offering a complete
array of communications and enhanced computer-telephone services to carriers
and other participants in telecommunications service distribution and resale,
and to commercial and residential customers in the form of long distance,
calling card, virtual office and wireless service, such as cellular and paging.
The Company, as a switched-based carrier, has established an objective to
become a global provider of integrated telecommunications services to wholesale
and commercial markets. From personal communications management to global
connectivity, Progressive will utilize intelligent technologies such as
computer-telephony integration, to fashion its existing and future
capabilities, services and technologies into customized, high-value solutions
to meet the specific needs of its customer. Progressive's consolidated revenues
for the year ended December 31, 1998 was approximately $6,000,000.
Item 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS
<TABLE>
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(a) Pro Forma Financial Information as of June 30, 1999:
Introduction to Unaudited Pro Forma Condensed Financial Statements F-2
Unaudited Pro Forma Condensed Balance Sheet at June 30, 1999 F-3
Notes to Unaudited Pro Forma Condensed Balance Sheet F-4
Unaudited Pro Forma Condensed Statement of Operations for the years
ended September 30, 1998 for Marquee Entertainment, Inc., August 31,
1998 for Progressive Telecommunications Corporation and
December 31, 1998 for CCC Communications Corporation F-5
Unaudited Pro Forma Condensed Statement of Operations for the nine
months ended for Marquee Entertainment, Inc., ten months ended for
Progressive Telecommunications Corporation and six months ended for
CCC Communications Corporation F-6
Notes to Unaudited Pro Forma Condensed Statements of Operations F-7
</TABLE>
<PAGE> 4
<TABLE>
<CAPTION>
Page
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<S> <C>
(b) Financial Statements of businesses acquired:
PROGRESSIVE TELECOMMUNICATIONS CORPORATION
Independent Auditors' Report F-8
Financial Statements:
Balance Sheets - August 31, 1998 and June 30, 1999 (unaudited) F-9
Statements of Operations for the years ended August 31, 1998 and 1997
and the ten months ended June 30, 1999 (unaudited) F-10
Statements of Stockholders' Equity for the years ended August 31, 1998
and 1997 and the ten months ended June 30, 1999 (unaudited) F-11
Statements of Stockholders' Equity for the years ended August 31, 1998
and 1997 and the ten months ended June 30, 1999 (unaudited) F-12
Notes to Financial Statements F-13
CCC COMMUNICATIONS CORPORATION
Independent Auditors' Report F-24
Financial Statements:
Consolidated Balance Sheets - August 31, 1998 and June 30, 1999 (unaudited) F-25
Consolidated Statements of Operations for the years ended August 31,
1998 and 1997 and the ten months ended June 30, 1999 (unaudited)
F-26
Consolidated Statements of Stockholders' Equity for the years ended
August 31, 1998 and 1997 and the ten months ended June 30, 1999
(unaudited) F-27 Consolidated Statements of Stockholders' Equity for
the years ended
August 31, 1998 and 1997 and the ten months ended June 30, 1999 (unaudited) F-28
Notes to Financial Statements F-29
(c) Exhibits
2.1 Securities Exchange Agreement dated as of June
7, 1999 was previously filed on June 15, 1999.
(Registrant hereby agrees to furnish
supplementary to the Securities and Exchange
Commission, upon request, a copy of any omitted
Schedule referred to in the Agreement.
2.2 Certificate of Amendment to the Certificate of
Incorporation filed with Secretary of State of
Nevada on August 3, 1999 was previously filed
with Form 8-K on August 13, 1999.
2.3 Assignment of Film Library dated July 29, 1999,
transferring library to Harold Brown was
previously filed with Form 8-K on August 13,
1999.
</TABLE>
<PAGE> 5
Pursuant to the requirements of the Securities Exchange Act of 1934,
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
PROGRESSIVE TELECOMMUNICATIONS
CORPORATION
By: /s/ Barry Shevlin
----------------------------------
Barry Shevlin, CEO
Dated: October 13, 1999
<PAGE> 6
TABLE OF CONTENTS
<TABLE>
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Page
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<S> <C>
Pro Forma Financial Information as of June 30, 1999:
Introduction to Unaudited Pro Forma Condensed Financial Statements F-2
Unaudited Pro Forma Condensed Balance Sheet at June 30, 1999 F-3
Notes to Unaudited Pro Forma Condensed Balance Sheet F-4
Unaudited Pro Forma Condensed Statement of Operations for the years
ended September 30, 1998 for Marquee Entertainment, Inc., August 31,
1998 for Progressive Telecommunications Corporation and
December 31, 1998 for CCC Communications Corporation F-5
Unaudited Pro Forma Condensed Statement of Operations for the nine
months ended for Marquee Entertainment, Inc., ten months ended for
Progressive Telecommunications Corporation and six months ended for
CCC Communications Corporation F-6
Notes to Unaudited Pro Forma Condensed Statements of Operations F-7
Financial Statements of businesses acquired:
PROGRESSIVE TELECOMMUNICATIONS CORPORATION
Independent Auditors' Report F-8
Financial Statements:
Balance Sheets - August 31, 1998 and June 30, 1999 (unaudited) F-9
Statements of Operations for the years ended August 31, 1998 and 1997
and the ten months ended June 30, 1999 (unaudited) F-10
Statements of Stockholders' Equity for the years ended August 31, 1998
and 1997 and the ten months ended June 30, 1999 (unaudited) F-11
Statements of Stockholders' Equity for the years ended August 31, 1998
and 1997 and the ten months ended June 30, 1999 (unaudited) F-12
Notes to Financial Statements F-13
CCC COMMUNICATIONS CORPORATION
Independent Auditors' Report F-24
Financial Statements:
Consolidated Balance Sheets - August 31, 1998 and June 30, 1999 (unaudited) F-25
Consolidated Statements of Operations for the years ended August 31,
1998 and 1997 and the ten months ended June 30, 1999 (unaudited)
F-26
Consolidated Statements of Stockholders' Equity for the years ended
August 31, 1998 and 1997 and the ten months ended June 30, 1999
(unaudited) F-27 Consolidated Statements of Stockholders' Equity for
the years ended
August 31, 1998 and 1997 and the ten months ended June 30, 1999 (unaudited) F-28
Notes to Financial Statements F-29
</TABLE>
F-1
<PAGE> 7
MARQUEE ENTERTAINMENT, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL DATA
The following unaudited pro forma condensed combined balance sheet as of June
30, 1999 and the unaudited pro forma condensed combined statement of operations
for the nine month period ended June 30, 1999 give effect to the Merger as of
July 30, 1999 for the pro forma consolidated balance sheet and as of January 1,
1998 for the pro forma statement of operations.
The unaudited pro forma condensed combined financial statements are based on
historical financial statements of Marquee Entertainment, Inc. ("Marquee" or
the "Company") and Progressive Telecommunications Corp. ("PTC"), giving effect
to the Merger applying the purchase method of accounting and the assumptions
and adjustments as discussed in the accompanying notes to the unaudited pro
forma condensed combined financial statements (see Note A). These unaudited pro
forma condensed combined financial statements have been prepared by the
management of Marquee based upon the condensed combined financial statements of
Marquee and PTC as of June 30, 1999 and for the nine and ten months ended June
30, 1999. The unaudited pro forma condensed combined financial statements
should be read in conjunction with the historical financial statements and
notes incorporated by references for Marquee and elsewhere in this current
report for PTC thereto. The unaudited pro forma condensed combined financial
statements are not necessarily indicative of what actual results of operations
would have been for the period presented had the transaction occurred on the
dates indicated and do not purport to indicate the results of the future
operations.
A preliminary allocation of the purchase price has been made to major
categories of assets and liabilities in the accompanying Pro Forma Financial
Statements based on available information. The actual allocation of purchase
price and the resulting effect on income from operations may differ
significantly from the pro forma amounts included herein. These pro forma
adjustments represent the Company's preliminary determination of purchase
accounting adjustments and are based upon available information and certain
assumptions that the Company believes to be reasonable. Consequently, the
amounts reflected in the Pro Forma Financial Statements are subject to change,
and the final amounts may differ substantially.
F-2
<PAGE> 8
MARQUEE ENTERTAINMENT, INC.
(A Development Stage Company)
UNAUDITED PROFORMA COMBINED BALANCE SHEET
June 30, 1999
<TABLE>
<CAPTION>
Marquee Progressive Proforma
Entertainment Telecommunications Increase Proforma
Inc. Corporation (Decrease) Combined
------------- ----------- ------------ ---------
<S> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents $ 30,922 $ 126,750 $ 165,258
Accounts receivable, net -- 104,895 542,003
Certificates of deposit -- -- 51,648
Inventory -- -- 7,587
Prepaid expense -- 429,027 437,732
- -----------------------------------------------------------------------------------------------------------------------
Total current assets 30,922 660,672 1,204,228
=======================================================================================================================
Property and equipment, net 73,557 879,556
- -----------------------------------------------------------------------------------------------------------------------
Other assets:
Trade loans -- 39,126 39,126
Due from employee -- 4,250 4,250
Due from stockholders -- 90,717 90,717
Due from affiliates -- 100 100
Deposits 4,500 1,800 35,786
Intangible assets, net -- 14,466 229,932
Goodwill, net -- 4,291,571 4,291,571
Deferred charges -- -- 50,000
Investment in subsidiary -- 433,467 (613,467)(d) --
613,467 (c)
(433,467)(e)
- -----------------------------------------------------------------------------------------------------------------------
Total other assets 4,500 4,875,497 -- 4,741,482
=======================================================================================================================
Total assets $ 35,422 $ 5,609,726 $ -- $ 6,825,266
- -----------------------------------------------------------------------------------------------------------------------
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 75,207 $ 3,917 808,833
Bank overdraft -- 316,738 316,738
Accrued payroll 735,259 -- 804,475
Payroll taxes payable -- 122,144
Accrued interest payable 30,330 44,648
Other accrued liabilities -- 168,012
Line of credit 15,639 15,639
Notes payable 273,700 803,492
8% convertible debenture 566,859 -- (566,859)(a) --
Current portion due to stockholder -- --
Current portion of capital lease obligation 23,438 23,438
Deposits on unissued common stock 480,000 480,000
Deferred income 143,000 -- 143,000
- -----------------------------------------------------------------------------------------------------------------------
Total current liabilities 1,520,325 1,143,762 (555,857) 3,741,421
- -----------------------------------------------------------------------------------------------------------------------
Long-term liabilities:
Long-term portion due to stockholder -- -- --
Long-term portion of capital lease obligation -- 7,460 7,460
- -----------------------------------------------------------------------------------------------------------------------
Total long-term liabilities -- 7,460 7,460
- -----------------------------------------------------------------------------------------------------------------------
Total liabilities 1,520,325 1,151,222 (555,857) 3,748,881
=======================================================================================================================
Minority Interest 747,303 747,303
Stockholders' equity:
Common stock 92,872 65,361 (41,785)(d) 601,747
36,362 (b)
88,937 (a)
360,000 (c)
(22,958)(e)
Additional paid-in capital 3,434,273 7,706,556 (7,706,556)(d) 4,118,298
(36,362)(b)
466,920 (a)
253,467 (c)
(1,068,491)(e)
Warrants -- -- (2,000)(e) --
Accumulated deficit (5,012,048) 4,060,716 4,060,716 (d) (5,012,048)
1,113,055 (e)
- -----------------------------------------------------------------------------------------------------------------------
Total stockholders' equity (1,414,003) 3,711,201 (3,611,750) (292,003)
- -----------------------------------------------------------------------------------------------------------------------
$ 35,422 $ 5,609,726 (4,167,607) $ 4,204,181
=======================================================================================================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE> 9
MARQUEE ENTERTAINMENT, INC.
UNAUDITED PROFORMA STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
Progressive CCC
Marquee Telecommunications Communications
Entertainment Corporation Corporation Proforma
Year Ended Year Ended Year Ended Increase Proforma
September 30, 1998 August 31, 1998 December 31, 1998 (Decrease) Combined
------------------ ------------------ ----------------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Revenues:
Communication services $ -- $ 184,499 $ 5,595,424 $ 5,779,923
Film revenue 416,492 -- -- 416,492
- ----------------------------------------------------------------------------------------------------------------------------------
Total revenues 416,492 184,499 5,595,424 6,196,415
- ----------------------------------------------------------------------------------------------------------------------------------
Operating expenses:
Communication services -- 87,331 4,784,892 4,872,223
Marketing services -- -- -- --
Film operating costs 68,524 -- 68,524
General and administrative 655,008 1,355,532 1,339,890 3,350,430
- ----------------------------------------------------------------------------------------------------------------------------------
Total operating expenses 723,532 1,442,863 6,124,782 8,291,177
- ----------------------------------------------------------------------------------------------------------------------------------
Other income & (expense):
Other income -- -- 28,089 28,089
Interest expense (34,250) (29,459) (118,878) (182,587)
- ----------------------------------------------------------------------------------------------------------------------------------
Net loss $ (341,290) $(1,287,823) $ (620,147) $(2,249,260)
- ----------------------------------------------------------------------------------------------------------------------------------
Net loss per share $ (0.20) $ (0.63) $ (0.03) $ (0.23)
==================================================================================================================================
Weighted average number of shares and
share equivalents outstanding 1,706,450 2,038,059 19,824,337 9,909,044
==================================================================================================================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
<TABLE>
<CAPTION>
Progressive
Marquee Telecommunications
Entertainment Inc. Corporation Proforma
Nine Months Ended Ten Months Ended Increase Proforma
June 30, 1999 June 30,1999 (Decrease) Combined
----------------- ------------ ---------- ----------
<S> <C> <C> <C> <C>
Revenues:
Communication services $ -- $ 210,075 $ 3,108,079
Film revenue 199,371 -- 199,371
- ----------------------------------------------------------------------------------------------------------------------
Total revenues 199,371 210,075 3,307,450
- ----------------------------------------------------------------------------------------------------------------------
Operating expenses:
Communication services -- 161,779 2,618,027
Marketing services -- -- --
Film operating costs 23,201 -- 23,201
General and administrative 356,042 1,332,176 2,510,204
- ----------------------------------------------------------------------------------------------------------------------
Total operating expenses 379,243 1,493,955 5,151,432
- ----------------------------------------------------------------------------------------------------------------------
Other income & (expense):
Other income -- 15,033 5,346
Interest expense (39,581) (42,749) (146,484)
- ----------------------------------------------------------------------------------------------------------------------
Net loss $ (219,453) $(1,311,596) (1,985,120)
- ----------------------------------------------------------------------------------------------------------------------
Net loss per share $ (0.09) $ (0.39) (0.20)
- ----------------------------------------------------------------------------------------------------------------------
Weighted average number of shares and share
equivalents outstanding 2,438,366 6,546,193 9,909,044
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE> 10
MARQUEE ENTERTAINMENT, INC.
NOTES TO UNAUDITED PRO FORMA CONSOLIDATE FINANCIAL STATEMENTS
NOTE A
As consideration for Marquee's acquisition of Progressive, Marquee has agreed
to pay to holders of Progressive common stock consideration pursuant to the
terms of the securities exchange agreement, as follows:
The consideration paid at closing will be in the form of 9,000,000 shares of
Marquee common stock, par value $.04 per share. The Company also approved a 1
for 5 reverse common stock split resulting in the conversion of 4,545,220
shares of common stock into 909,044 shares of common stock to Marquee
shareholders.
NOTE B
The pro forma condensed combined balance sheet includes the adjustments
necessary to give full effect to the acquisition as if it had occurred on June
30, 1999 and to reflect the estimated fair value of assets acquired and
liabilities assumed including: (i) the retirement of 3,626,176 shares of
Marquee common stock in connection with the Company's 1 for 5 reverse stock
split; (ii) the issuance of 9,000,000 shares of Marquee's common stock in
exchange for all of the outstanding shares of Progressive; (iii) the
elimination of Progressive's equity accounts, and (iv) the elimination of CCC
Communication equity accounts.
These adjustments are summarized as follows:
<TABLE>
<S> <C> <C> <C>
(a) Conversion of debt to pre-split Marquee stock
8% Convertible debenture $ 555,857
Common stock (88,937)
Additional paid-in capital (466,920)
(b) Net effect of 1 for 5 reverse stock split
Additional paid-in capital 36,362
Common stock (36,362)
(c) Issuance of Marquee common stock in exchange for
Progressive common stock
Investment in Progressive 613,467
Common Stock (360,000)
Additional paid-in capital (253,467)
</TABLE>
F-5
<PAGE> 11
<TABLE>
<S> <C> <C> <C>
(d) Elimination of Progressive equity accounts:
Common stock 41,785
Additional paid-in capital 4,331,527
Accumulated deficit (3,759,845)
Investment in Progressive (613,467)
(e) Elimination of CCC Communication equity accounts:
Common stock 22,958
Additional paid-in capital 1,068,491
Warrants 2,000
Accumulated deficit (1,113,055)
Investment in CCC
</TABLE>
F-6
<PAGE> 12
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders
Progressive Telecommunications Corporation
We have audited the accompanying balance sheets of Progressive
Telecommunications Corporation, as of August 31, 1998 and 1997 and the related
statements of operations, stockholder's equity and cash flows for the years
ended August 31, 1998 and 1997. 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 audits to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Progressive Telecommunications
Corporation as of August 31, 1998 and 1997 and the results of its operations
and its cash flows for the years ended August 31, 1998 and 1997, in conformity
with generally accepted accounting principles.
Meeks, Dorman & Company, P.A.
Longwood, Florida
August 26, 1999
F-7
<PAGE> 13
PROGRESSIVE TELECOMMUNICATIONS CORPORATION
BALANCE SHEETS
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
June 30, June 30, August 31, August 31,
1999 1998 1998 1997
- -------------------------------------------------------------------------------------------------------------------------------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 126,750 $ 29,306 $ 7,730 $ --
Accounts receivable, net 104,895 -- 71,468 --
Prepaid expense 429,027 -- 83,333
- -------------------------------------------------------------------------------------------------------------------------------
Total current assets 660,672 29,306 162,531 --
===============================================================================================================================
===============================================================================================================================
Property and equipment, net 73,557 27,741 70,351 30,773
===============================================================================================================================
Other assets:
Due from employee 43,376 71,463 30,633 --
Due from stockholders 90,717 108,095 83,367 15,347
Due from affiliates 100 27,842 -- --
Investment in subsidiary 433,467 -- -- --
Deposits 1,800 65,790 800 4,437
Intangible assets, net 14,466 21,059 17,070 625
Goodwill, net 4,291,571 -- -- --
- -------------------------------------------------------------------------------------------------------------------------------
Total other assets 4,875,497 294,249 131,870 20,409
===============================================================================================================================
$ 5,609,726 $ 351,296 $ 364,752 $ 51,182
===============================================================================================================================
Liabilities and Stockholders' Equity
Current liabilities:
Bank overdraft $ -- $ -- $ -- $ 9,332
Accounts payable 316,738 139,830 126,766 24,306
Payroll taxes payable 3,917 -- 101,304 9,373
Accrued interest payable 30,330 1,661 28,330 --
Other accrued liabilities 15,639 86,649 6,394 --
Line of credit -- -- 400,000 --
Notes payable to stockholders 273,700 349,975 256,200 --
Current portion due to stockholder -- -- 5,400 --
Current portion of capital lease obligation 23,438 -- 14,426 --
Deposits on unissued common stock 480,000 -- 54,000 --
- -------------------------------------------------------------------------------------------------------------------------------
Total current liabilities 1,143,762 578,115 992,820 43,011
===============================================================================================================================
Long-term liabilities:
Long-term portion due to stockholder -- 22,200 12,600 --
Long-term portion of capital lease obligation 7,460 70,300 28,774 --
- -------------------------------------------------------------------------------------------------------------------------------
Total long-term liabilities 7,460 92,500 41,374 --
===============================================================================================================================
Total liabilities 1,151,222 670,615 1,034,194 43,011
===============================================================================================================================
Commitments and contingencies (Notes 13 & 14)
Minority interest 747,302 -- -- --
Stockholders' equity:
Non-voting cumulative preferred stock, $0.01 par value,
1,000,000 shares authorized, 4,500 and 111,500 shares issued
and outstanding at August 31, 1998 and 1997, respectively -- 12,303 45 1,115
Common stock, $0.01 par value, 100,000,000 shares authorized,
2,765,940 and 1,577,300 shares issued and outstanding
at August 31, 1998 and 1997, respectively 65,461 236,826 27,659 15,773
Additional paid-in capital 7,706,457 407,064 778,906 179,512
Deficit accumulated during the development stage (4,060,716) (975,512) 1,476,052 (188,229)
- -------------------------------------------------------------------------------------------------------------------------------
Total stockholders' equity 3,711,202 (319,319) (669,442) 8,171
===============================================================================================================================
$ 5,609,726 $ 351,296 $ 364,752 $ 51,182
===============================================================================================================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-8
<PAGE> 14
PROGRESSIVE TELECOMMUNICATIONS CORPORATION
Statements of Operations
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
For the period ended,
June 30, June 30, August 31, August 31,
1999 1998 1998 1997
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues:
Communication services $ 352,879 $ 43,056 $ 184,499 $ 26,918
- ----------------------------------------------------------------------------------------------------
Total revenues 352,879 43,056 184,499 26,918
====================================================================================================
Operating expenses:
Communication services 269,746 27,981 87,331 5,465
General and administrative 2,614,867 800,261 1,355,532 209,380
- ----------------------------------------------------------------------------------------------------
Total operating expenses 2,884,613 828,242 1,442,863 214,845
====================================================================================================
Other income & (expense):
Other income 15,852 41 -- --
Interest expense (68,782) (2,137) (29,459) --
- ----------------------------------------------------------------------------------------------------
Net loss $ (2,584,664) $ (787,282) $(1,287,823) $ (187,927)
====================================================================================================
Net loss per share $ (0.39) $ (0.38) $ (0.63) $ (0.13)
====================================================================================================
Weighted average number of shares
and share equivalents outstanding 6,546,193 2,038,059 2,038,059 1,502,965
====================================================================================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-9
<PAGE> 15
PROGRESSIVE TELECOMMUNICATIONS CORPORATION
Statements of Stockholders' Equity
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
Preferred Stock Common Stock Additional
------------------- -------------------- Paid-in Accumulated Total
Shares Par Value Shares Par Value Capital Deficit Equity
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, July 10, 1996 -- $ -- -- $ -- $ -- $ -- $ --
Issuance of common stock -- -- 1,577,300 15,773 74,947 -- 90,720
Issuance of preferred stock 111,500 1,115 -- -- 104,565 -- 105,680
Net loss (unaudited) -- -- -- -- -- (188,229) (188,229)
- -----------------------------------------------------------------------------------------------------------------------------
Balance, August 31, 1997 111,500 1,115 1,577,300 15,773 179,512 (188,229) 8,171
=============================================================================================================================
Issuance of preferred stock 118,820 1,188 -- -- 210,762 -- 211,950
Issuance of common stock -- -- 100,000 1,000 -- -- 1,000
Conversion of preferred stock
to common stock (225,820) (2,258) 451,640 4,516 (2,258) -- --
Issuance of common stock
for services -- -- 126,000 1,260 313,800 -- 315,060
Conversion of debt into
common stock -- -- 511,000 5,110 77,090 -- 82,200
Net loss -- -- -- -- -- (1,287,823) (1,287,823)
- -----------------------------------------------------------------------------------------------------------------------------
Balance, August 31, 1998 4,500 45 2,765,940 27,659 778,906 (1,476,052) (669,442)
=============================================================================================================================
Issuance of common stock for cash -- -- 130,600 1,306 206,694 -- 208,000
Conversion of preferred stock
to common stock (4,500) (45) 9,000 90 (45) -- --
Issuance of common stock
for services -- -- 446,995 4,470 1,438,910 -- 1,443,380
Net loss -- -- -- -- -- (2,584,664) (2,584,664)
Conversion of debt into
common stock -- -- 657,920 6,579 1,503,742 -- 1,510,321
Issuance of stock for acquisition -- -- 2,535,738 25,357 3,778,250 -- 3,803,607
- -----------------------------------------------------------------------------------------------------------------------------
Balance, June 30, 1999 -- $ -- 6,546,193 $65,461 $7,706,457 $(4,060,716) $ 3,711,202
=============================================================================================================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-10
<PAGE> 16
PROGRESSIVE TELECOMMUNICATIONS CORPORATION
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
For the period ended,
June 30, June 30, August 31, August 31,
1999 1998 1998 1997
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss $(2,584,664) $(787,282) $(1,287,823) $(188,229)
Adjustments to reconcile net cash
used by operating activities:
Depreciation and amortization 246,173 6,213 9,739 6,441
Provision for doubtful accounts -- -- 14,299 --
Issuance of stock for services 1,443,380 -- 315,060 --
Minority interest in subsidiary 747,302
Changes in assets and liabilities:
Accounts receivable (33,427) 142 (85,767) --
Prepaid expense (345,694) 18,343 (83,333) --
Due from employee (12,743) -- (30,633) --
Bank overdraft -- -- (9,332) 9,332
Accounts payable 189,972 -- 102,460 24,306
Due from affiliate (100) -- -- --
Payroll taxes payable (97,387) (18,000) 91,931 --
Accrued interest payable 2,000 170 28,330 --
Other accrued liabilities 9,245 86,309 6,394 9,373
- -----------------------------------------------------------------------------------------------------------
Net cash used by operating activities (435,943) (694,105) (928,675) (138,777)
===========================================================================================================
Cash flows from investing activities:
Investment in subsidiary (1,149,437) -- -- --
Purchase of property and equipment (18,369) -- (6,117) (37,074)
Increase in loans to stockholders (7,350) -- (68,020) (15,347)
(Increase) decrease in deposits (1,000) -- 3,637 (4,437)
Purchase of intangible assets (400) -- (16,445) (765)
- -----------------------------------------------------------------------------------------------------------
Net cash used in investing activities (1,176,556) -- (86,945) (57,623)
===========================================================================================================
Cash flows from financing activities:
Net proceeds from issuance of preferred stock -- -- 211,950 105,680
Net proceeds from issuance of common stock 208,000 221,422 1,000 --
Proceeds from line of credit 1,110,321 -- 400,000 --
Proceeds from stockholder loans 17,500 -- 356,400 90,720
Proceeds from deposits on unissued common stock 426,000 -- 54,000 --
Proceeds from capital lease obligation -- -- -- --
Payments on capital lease obligation (12,302) -- -- --
Payments on due to stockholder (18,000) -- -- --
- -----------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 1,731,519 221,422 1,023,350 196,400
- -----------------------------------------------------------------------------------------------------------
Net increase in cash 119,020 (472,683) 7,730 --
Cash, beginning of period 7,730 23,431 -- --
- -----------------------------------------------------------------------------------------------------------
Cash, end of period $ 126,750 $(449,252) $ 7,730 $ --
===========================================================================================================
Supplemental disclosure:
Interest paid during the period $ -- $ 2,137 $ 1,129 $ --
Income taxes paid during the period $ -- $ -- $ -- $ --
Conversion of debt into common stock $ 1,510,321 $ -- $ 82,200 --
Capital lease financing $ -- $ -- $ 43,200 $ --
===========================================================================================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-11
<PAGE> 17
PROGRESSIVE TELECOMMUNICATIONS CORPORATION
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - ORGANIZATION
Progressive Telecommunications Corp. ("The Company") was incorporated on June
10, 1996, under the laws of the state of Florida. The Company is a provider of
long distance telephone service. The Company primarily utilizes independent
representatives ("IRs") to market its long distance service to residential and
small business subscribers throughout the United States. The Company completes
subscriber calls to all directly dialable locations worldwide. Since its
formation, the Company has utilized network switching and transmission
facilities provided by other companies. Activities since inception have
included primarily research, raising capital, establishing facilities, and
hiring technical and administrative employees, developing and marketing
products.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting and reporting policies of the Company conform with generally
accepted accounting principles. The policies that materially affect the
financial position and results of operations are as follows:
Fair Value of Financial Instruments - The carrying value of cash, receivables,
due from employee, due from stockholders, accounts payable, notes payable, due
to stockholder, and capital lease obligations approximate fair value due to the
short maturity of these instruments.
Accounts Receivable - Accounts receivable are net of allowance for doubtful
accounts of $14,299 and $23,280 at August 31, 1998 and 1997, respectively. The
Company establishes an allowance for doubtful accounts and anticipated revenue
adjustments based upon factors surrounding the credit risk of specific
subscribers, historical trends, and other information. The Company also
reserves for specific accounts when considered appropriate.
Property and Equipment - Fixed assets are carried at cost and consist of
furniture and equipment. Depreciation is provided for financial reporting
purposes over the estimated useful life of the assets, which are estimated to
range between five to seven years, using the straight-line method. The modified
accelerated cost recovery system is used for federal income tax purposes.
Intangible Assets - Intangible assets consist of software and organization
costs which are carried at cost and are being amortized on a straight-line
basis over a five-year life.
Revenue Recognition - The Company's long distance revenues are recognized as
services are provided and billed to subscribers; the terms of which are
specific to each customer agreement.
F-12
<PAGE> 18
PROGRESSIVE TELECOMMUNICATIONS CORPORATION
NOTES TO FINANCIAL STATEMENTS
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Use of Estimates - The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Cash and Cash Equivalents - The Company considers all highly liquid financial
instruments purchased with an initial maturity of three months or less to be
cash equivalents.
Income Taxes - The Company accounts for income taxes under Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes," which
requires recognition of deferred tax liabilities and assets for the expected
future tax consequences of events that have been included in the financial
statements or tax returns. Under this method, deferred tax liabilities and
assets are determined based on the difference between the financial statement
and tax bases of assets and liabilities using enacted tax rates in effect for
the year in which the differences are expected to reverse. Valuation allowances
are established, when appropriate, to reduce deferred tax assets to the amount
expected to be realized.
Concentration of Credit Risk - The Company's subscribers are primarily
residential subscribers and are not concentrated in any specific geographic
region of the United States. The Company has agreements with local exchange
carriers, which provide billings and collection services to the majority of the
Company's subscribers.
Long-Lived Assets - The Company has adopted the provisions of Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-lived Assets" as of July 10, 1996 (date of inception) and determined that
no impairment loss needs to be recognized for applicable assets.
Stock-Based Compensation - The Company has adopted the provisions of Statement
of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation," as of July 10, 1996 (date of inception) which encourages
companies to record compensation cost for stock-based employee compensation
plans at fair value.
F-13
<PAGE> 19
PROGRESSIVE TELECOMMUNICATIONS CORPORATION
NOTES TO FINANCIAL STATEMENTS
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Earnings Per Share - The Company has adopted Statement of Financial Accounting
Standards No. 128, Earnings Per Share", which requires presentation of basic
earnings per share ("Basic EPS") and diluted earnings per share ("Diluted
EPS"). The computation of Basic EPS is computed by dividing income available to
common stockholders by the weighted average number of outstanding common shares
during the period. Diluted EPS gives effect to all dilutive potential common
shares outstanding during the period. The computation of Diluted EPS does not
assume conversion, exercise or contingent exercise of securities that would
have an anti-dilutive effect on earnings.
<TABLE>
<CAPTION>
-----------------------------------------------------------
August 31, 1998 1997
-----------------------------------------------------------
<S> <C> <C>
Basic EPS 2,038,059 1,502,965
Diluted EPS 2,038,059 1,502,965
-----------------------------------------------------------
</TABLE>
Capital Structure - The Company has adopted Statement of Financial Accounting
Standards No. 129, "Disclosure of Information about Capital Structure" which is
applicable to all companies. Capital structure disclosures required by SFAS 129
including liquidation preferences of preferred stock, information about the
pertinent rights and privileges of the outstanding equity securities, and the
redemption amounts for all issues of capital stock that are redeemable at fixed
or determinable prices on fixed or determinable dates. The Company has no items
which would be affected by this disclosure requirement.
Comprehensive Income - The Company has adopted Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income," which requires
that changes in amounts of certain items, including foreign currency
translation adjustments and gains and losses on certain securities be shown in
the financial statements. The Company has no items that represent comprehensive
income, and therefore, has not included a schedule of comprehensive income in
the financial statements.
Unaudited Interim Financial Statements - The unaudited financial statements and
related notes thereto for the ten months ended June 30, 1999 and 1998 include
all normal and recurring adjustments which in the opinion of management are
necessary for a fair presentation and are prepared on the same basis as the
audited annual statements. The interim results are not necessarily indicative
of the results that may be expected for the full year.
F-14
<PAGE> 20
PROGRESSIVE TELECOMMUNICATIONS CORPORATION
NOTES TO FINANCIAL STATEMENTS
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Disclosures about Segments of an Enterprise and Related Information - The
Company has adopted Statement of Financial Accounting Standards No. 131,
"Disclosures about Segments of an Enterprise and Related Information," ("SFAS
No. 131"). SFAS No. 131 changes the way public companies report information
about segments of their business in annual financial statements. It also
requires entity-wide disclosures about the products and services an entity
provides, the material countries in which it holds assets and reports revenues,
and its major customers. The Company has no significant segments that would
require separate disclosure.
Impact of Year 2000 Issue - During the period ended December 31, 1998, the
Company conducted an assessment of issues related to the Year 2000 and
determined that there were no modifications needed in order to ensure that its
computer systems will properly utilize dates beyond December 31, 1999. At this
time, the Company cannot determine the impact the Year 2000 will have on its
key customers or suppliers. If the Company's customers or suppliers do not
convert their systems to become Year 2000 compliant, the Company may be
adversely impacted. The Company is addressing these risks in order to reduce
the impact on the Company.
NOTE 3 - NEW ACCOUNTING PRONOUNCEMENTS
The American Institute of Certified Accountants' Executive Committee issued
Statement of Position Number 98-1 ("SOP 98-1"), "Accounting for the Cost of
Computer Software Developed or Obtained for Internal Use." SOP 98-1 is
effective for fiscal years beginning after December 15, 1998. Management
believes that the Company is substantially in compliance with this
pronouncement and that the implementation of this pronouncement will not have a
material effect on the Company's financial position, results of operations or
cash flows.
F-15
<PAGE> 21
PROGRESSIVE TELECOMMUNICATIONS CORPORATION
NOTES TO FINANCIAL STATEMENTS
NOTE 3 - NEW ACCOUNTING PRONOUNCEMENTS (CONTINUED)
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities," ("SFAS No. 133"). This statement establishes
accounting and reporting guidelines for derivatives and requires an
establishment to record all derivatives as assets or liabilities on the balance
sheet at fair value. Additionally, this statement establishes accounting
treatment for four types of hedges: hedges of changes in the fair value of
assets or liabilities, firm commitments, forecasted transactions and hedges of
foreign currency exposures of net investments in foreign operations. Any
derivative that qualifies as a hedge, depending upon the nature of that hedge,
will either be offset against the change in fair value of the hedged assets,
liabilities or firm commitments through earnings or recognized in other
comprehensive income until the hedged item is recognized in earnings. SFAS No.
133 is effective for years beginning after June 15, 2000. The Company does not
currently participate in these types of financing activities and does not
anticipate that the adoption of this statement will have a material impact on
its consolidated balance sheets, statements of operations, or cash flows.
NOTE 4 - DUE FROM STOCKHOLDERS
Due from stockholders consists of amounts loaned to various stockholders.
Interest has not been accrued on the loans, and the loans are due on demand.
NOTE 5 - PROPERTY AND EQUIPMENT
Property and equipment consisted of the following:
<TABLE>
<CAPTION>
-------------------------------------------------------------------------
August 31,
-------------------------
1998 1997
-------- --------
<S> <C> <C>
Furniture, fixtures and equipment $ 43,833 $ 37,074
Equipment under capital lease 42,558 --
Less - Accumulated depreciation (16,040) (6,301)
-------------------------------------------------------------------------
Net property and equipment $ 70,351 $ 30,773
-------------------------------------------------------------------------
</TABLE>
Depreciation and amortization expense for property and equipment was $11,944
and $6,301 for the years ended August 31, 1998 and 1997.
F-16
<PAGE> 22
PROGRESSIVE TELECOMMUNICATIONS CORPORATION
NOTES TO FINANCIAL STATEMENTS
NOTE 6 - INTANGIBLE ASSETS
Intangible assets consisted of the following:
<TABLE>
<CAPTION>
-------------------------------------------------------------------------
August 31,
-------------------------
1998 1997
-------- --------
<S> <C> <C>
Organization costs $ 765 $ 765
Computer software 18,651 --
Less - Accumulated amortization (2,346) (140)
-------------------------------------------------------------------------
Net intangible assets $ 17,070 $ 625
-------------------------------------------------------------------------
</TABLE>
Amortization expense for intangibles was $2,206 and $140 for the years ended
August 31, 1998 and 1997.
NOTE 7 - LINE OF CREDIT
The Company has a $1,000,000 line of credit available with an investment
company expiring June 1, 1999. The line accrues interest at 12%, and had a
balance of $400,000 outstanding at August 31, 1998.
NOTE 8 - NOTES PAYABLE TO STOCKHOLDERS
Notes payable to stockholders consist of notes to several stockholders issued
in conjunction with various private placements. The notes accrue interest at 9%
and have maturity dates ranging from November 1998 to April 1999. The Company
had $256,200 outstanding at August 31, 1998.
NOTE 9 - DUE TO STOCKHOLDER
Due to stockholder consists of amounts advanced to the Company by a stockholder
to be used for a marketing campaign. As the result of a lawsuit and settlement
agreement (See Note 14 for further explanation), the balance will be repaid
over a one year period with payments of $5,400 due in the year ended August 31,
1999, and $12,600 due in the year ended August 31, 2000.
F-17
<PAGE> 23
PROGRESSIVE TELECOMMUNICATIONS CORPORATION
NOTES TO FINANCIAL STATEMENTS
NOTE 10 - OBLIGATIONS UNDER CAPITAL LEASE
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
AUGUST 31, 1998 1997
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Amount payable to leasing company under capital lease agreement, principal
payable in 24 equal monthly installments of $2,175, with interest at 12%,
beginning December 1998 and ending November 2000, collateralized by
equipment $ 43,200 $ --
- --------------------------------------------------------------------------------------------------------------
Less current maturities (14,426) --
- --------------------------------------------------------------------------------------------------------------
$ 28,774 $ --
- --------------------------------------------------------------------------------------------------------------
</TABLE>
At August 31, 1998, present value of minimum capital lease payments
approximated the following:
<TABLE>
---------------------------------------------------
<S> <C>
August 31, 1999 $ 17,400
August 31, 2000 26,100
August 31, 2001 6,525
---------------------------------------------------
50,025
Less amount representing interest (6,825)
---------------------------------------------------
Net capital lease obligation $ 43,200
---------------------------------------------------
</TABLE>
NOTE 11 - INCOME TAXES
The significant components of the net deferred tax assets consist of the
following:
<TABLE>
<CAPTION>
-------------------------------------------------------------------------
August 31, 1998 1997
-------------------------------------------------------------------------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards $ 490,000 $ 55,291
Bad debt 5,000 --
Accrued interest 5,000 --
Other -- 7,915
-------------------------------------------------------------------------
Gross deferred income tax assets 500,000 63,206
Valuation allowance (498,000) (59,496)
-------------------------------------------------------------------------
Total deferred income tax assets 2,000 3,710
-------------------------------------------------------------------------
Total deferred income tax liabilities (2,000) (3,710)
-------------------------------------------------------------------------
Net deferred income tax assets $ -- $ --
-------------------------------------------------------------------------
</TABLE>
F-18
<PAGE> 24
PROGRESSIVE TELECOMMUNICATIONS CORPORATION
NOTES TO FINANCIAL STATEMENTS
NOTE 11 - INCOME TAXES (CONTINUED)
The following summary reconciles differences from taxes at the Federal
statutory rate with the effective rate:
<TABLE>
<CAPTION>
--------------------------------------------------------------------------
Year Ended August 31, 1998 1997
--------------------------------------------------------------------------
<S> <C> <C>
Federal income taxes at statutory rates (34.0%) (34.0%)
State taxes, net of federal benefit (5.0%) (5.5%)
Losses without tax benefits 39.0% 39.5%
--------------------------------------------------------------------------
Income taxes at effective rate -- --
--------------------------------------------------------------------------
</TABLE>
Unused net operating losses for income tax purposes, expiring in various
amounts through 2018, of approximately $1,259,000 are available at August 31,
1998, for carryforward against future years' taxable income. Under Section 382
of the Internal Revenue Code, the annual utilization of this loss may be
limited due to changes in ownership. The tax benefit of these losses of
approximately $490,000 has been offset by a valuation allowance due to it being
more likely than not that the deferred tax assets will not be realized. The
valuation allowance increased $438,504 for the year ended August 31, 1998.
NOTE 12 - SUBSCRIPTION AGREEMENTS
The Company completed subscription offerings between December 1997 and April
1998, priced between $10,025 and $10,050 per unit. Twenty units at $10,050 per
unit were sold, with the subscriber receiving a $10,000 promissory note bearing
interest at 9% and 5,000 shares of $.01 par value common stock. Principal and
interest were due upon the earlier of the date of the closing of the private
placement of common stock, or twelve months from the date of issuance. Gross
proceeds of $201,000 were raised, with 100,000 shares of common stock being
issued.
Eight subscription agreements were priced at $10,025, with a promissory note in
the amount of $9,525 being issued and all other terms remaining the same. Gross
proceeds of $80,200 were raised, with 40,000 shares of common stock being
unissued as of August 31, 1998. The $500 of common stock per unit represented
$4,000 of the deposits on unissued common stock as of August 31, 1998. The
remaining $50,000 in deposits on unissued common stock represents purchases by
two individuals which were not part of the private placement.
F-19
<PAGE> 25
PROGRESSIVE TELECOMMUNICATIONS CORPORATION
NOTES TO FINANCIAL STATEMENTS
NOTE 13 - PREFERRED STOCK
During the years ended August 31, 1998 and 1997, the Company completed private
placements of $368,350 of securities consisting of 230,320 shares of preferred
stock, par value $.01 with cumulative dividends at 1% above prime. Proceeds
from this offering, net of offering costs, were $211,950 and $105,680 at August
31, 1998 and 1997, respectively. All but 4,500 shares were converted to common
stock on a 2 for 1 basis as of August 31, 1998.
NOTE 14 - COMMITMENTS AND CONTINGENCIES
Leases -Future minimum rental commitments due under operating leases for
automobiles and property on which the offices are located with initial or
remaining terms greater than 12 months as of August 31, 1998 are as follows:
<TABLE>
<CAPTION>
----------------------------------------------------
Minimum
Year ending August 31, Commitments
----------------------------------------------------
<S> <C>
1999 $ 87,244
2000 84,186
2001 87,552
2002 91,051
----------------------------------------------------
Total minimum payments required $ 350,033
----------------------------------------------------
</TABLE>
Lease expense amounted to $72,380 and $16,368 for the years ended August 31,
1998 and 1997, respectively.
Consulting Agreement - On June 8, 1997, the management of the Company entered
into a consulting agreement with a financial consultant as part of their
efforts to raise capital for the Company. The agreement provided for payment to
the financial consultant on a declining scale beginning with 5% of the first
$1,000,000 and ending with 1% of all amounts over $4,000,000 raised. In
addition, the agreement provided for an option to purchase 10% of the Company's
common stock at par value of $.01. Finally, the financial consultant would
receive consulting fees at the rate of $5,000 per month for six months upon the
Company receiving $500,000 in funding. The financial consultant exercised his
option under this agreement and received 77,300 shares on August 17, 1997.
F-20
<PAGE> 26
PROGRESSIVE TELECOMMUNICATIONS CORPORATION
NOTES TO FINANCIAL STATEMENTS
NOTE 14 - COMMITMENTS AND CONTINGENCIES (CONTINUED)
On November 6, 1997, the Company granted to a limited partnership, in which the
financial consultant was a general partner, an option to purchase 500,000 shares
of common stock at an exercise price of $2.00, which is above the value of the
Company's common stock at the date of grant. The option is exercisable for five
years and is granted with certain "piggy back" registration rights.
On February 27, 1998, the Company issued 50,000 shares of stock to the above
financial consultant for consulting services, valued at $2.50 per share, or
$125,000.
On April 1, 1998, the above agreement was terminated, and a new service
agreement was written for consulting services to be paid through the issuance of
50,000 shares of stock and a one-time cash payment of $45,000.
As of August 31, 1998, performance on the above agreement was in dispute, and no
liability has been recorded in these financial statements. Subsequent to year
end, the financial consultant retained an attorney and alleged breach of
contract. No suit had been filed as of the date of these financial statements,
however, the consultant has demanded arbitration under the terms of the
agreement.
NOTE 15 - LITIGATION, CLAIMS AND ASSESSMENT
Subsequent to year-end, a lawsuit was filed against the Company and the two
principals of the Company, individually, alleging breach of fiduciary duties
while the two principals were employees of another telecommunications company.
In addition, the suit alleges usurped corporate opportunities belonging to the
other company, tortious interference with business relations,
misrepresentations, and the taking of business belonging to the other company,
resulting in the ultimate demise of the other telecommunications company. It is
management's belief that the allegations are without merit, that the outcome
appears to be favorable, and they intend to vigorously defend and/or prosecute
these matters.
On February 11, 1999, a lawsuit was filed against the Company alleging breach of
contract in regards to an agreement to purchase communications hardware,
software, and services of approximately $47,000 plus costs and attorney fees.
Management intends to vigorously defend the suit, and the likelihood of an
unfavorable outcome can not be determined at this time.
F-21
<PAGE> 27
PROGRESSIVE TELECOMMUNICATIONS CORPORATION
NOTES TO FINANCIAL STATEMENTS
NOTE 15 - LITIGATION, CLAIMS AND ASSESSMENT (CONTINUED)
On June 28, 1999, the Company entered into a settlement agreement, which was the
result of a lawsuit filed by a certain stockholder. Under the terms of the
agreement, the Company is to pay a total of $52,372 in equal installments over a
ten-month period commencing June 28, 1999. This agreement settles liabilities
associated with a $30,000 note originally issued as part of a subscription
agreement due February 17, 1999, as well as $18,000 originally provided by the
stockholder to facilitate a marketing campaign which never commenced.
NOTE 16 - SUBSEQUENT EVENTS
On January 27, 1999, the Company entered into a merger agreement with CCC
Communications Corporation ("CCC"). The Company acquired all the outstanding
shares of CCC in exchange for 3,033,940 shares of the Company's common stock
plus $1,500,000. The Company also agreed to provide $2,500,000 of capital during
the next 18 months from the execution of the agreement.
As of May 12, 1999, $400,000 had been provided to CCC, and the merger agreement
was amended. The next $250,000 of funding received by the Company would be split
50/50 between the Company and CCC. Thereafter, 80% of the funds received would
be set aside for CCC and 20% would be for the Company. This arrangement will
remain in effect until the balance of the $1,100,000 has been provided to CCC.
If the $1,100,000 is not received by August 15, 1999, the Company will issue up
to 1,100,000 shares of common stock, pro rata to the shareholders of CCC. The
Company will also issue 500,000 warrants to purchase the shares of the Company's
common stock for $2.25 per share. The amended agreement also called for the
Company to provide the 2,500,000 of capital during the next fourteen months from
the execution of the agreement
The Company entered into a "retained service agreement" on February 10, 1999,
with an advertising company. Under the terms of the agreement the advertising
agency will provide print advertising and support services relating to an
advertising campaign targeting domestic airline travelers, over the twelve
months ended December 1999. As compensation for said services, the Company has
agreed to pay cash of $550,000 and issue 217,995 shares of common stock valued
at $4.00 per share or $871,980, for a total of $1,421,980.
On June 7, 1999 Marquee Entertainment, Inc. agreed to acquire 100% of the
outstanding common stock of Progressive Telecommunications Corporation from the
shareholders of Progressive, in exchange for 45,000,000 shares of Marquee. The
closing is conditioned upon, among other things, an audit of the financial
statements of Progressive and its subsidiaries. The agreement also provides for
Marquee to amend its certificate of incorporation to change its name to
Progressive Telecommunications.
F-22
<PAGE> 28
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders
CCC Communications Corporation
We have audited the accompanying consolidated balance sheet of CCC
Communications Corporation as of December 31, 1998 and the related consolidated
statements of operations, stockholders' equity and cash flows for the year then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit. The financial statements of CCC Communications
Corporation as of December 31, 1997 were audited by other auditors whose report
dated August 14, 1998 expressed an unqualified opinion on those statements.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of CCC Communications Corporation
as of December 31, 1998 and the results of its operations and its cash flows for
the year then ended, 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 described in Note 15 to the
financial statements, the Company has experienced significant operating losses,
has an accumulated deficit and has negative working capital at December 31,
1998. These conditions 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 15. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
As discussed in the summary of significant accounting policies to the financial
statements, in fiscal 1998 the Company changed its method of accounting for
property and equipment by adopting the straight-line method of depreciation for
book purposes.
Meeks, Dorman & Company, P.A.
Longwood, Florida
August 26, 1999
F-23
<PAGE> 29
CCC COMMUNICATIONS CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
June 30, June 30, December 31, December 31,
1999 1998 1998 1997
- ----------------------------------------------------------------------------------------------------------------------------------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 7,586 $ 49,079 $ 21,709 $ 34,409
Accounts receivable, net 437,108 809,614 458,041 561,340
Certificates of deposit 50,648 -- 50,648 --
Inventory 7,587 2,500 13,770 2,500
Prepaid expense 8,705 66,035 447 9,858
- --------------------------------------------------------------------------------------------------------------------------------
Total current assets 511,634 927,228 544,615 608,107
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
Property and equipment, net 805,999 803,481 856,651 115,096
- --------------------------------------------------------------------------------------------------------------------------------
Other assets:
Deposits 29,486 75,072 27,487 12,462
Intangible assets, net 215,466 172,243 234,352 180,508
Deferred charges 50,000 360 50,360 --
- --------------------------------------------------------------------------------------------------------------------------------
Total other assets 294,952 247,675 312,199 192,970
- --------------------------------------------------------------------------------------------------------------------------------
$ 1,612,585 $ 1,978,384 $ 1,713,465 $ 916,173
- --------------------------------------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 823,544 $ 700,571 $ 752,926 $ 449,320
Other accrued liabilities 275,643 176,002 294,856 119,632
Line of credit 35,000 -- 35,000 --
Note payable 26,000 -- 26,000 --
Customer deposits 4,210 1,500 5,295 8,000
Current maturities of long-term debt 185,729 70,653 166,554 --
Current maturities of obligations under capital lease 110,936 100,110 102,224 40,100
- --------------------------------------------------------------------------------------------------------------------------------
Total current liabilities 1,461,062 1,048,836 1,382,855 617,052
- --------------------------------------------------------------------------------------------------------------------------------
Long-term debt, net of current maturities 87,500 185,728 154,780
Obligations under capital lease, net of current maturities 84,627 195,564 142,363 119,900
- --------------------------------------------------------------------------------------------------------------------------------
Total liabilities 1,633,189 1,430,128 1,679,998 736,952
- --------------------------------------------------------------------------------------------------------------------------------
Commitments and contingencies (Note 14)
Stockholders' equity:
Stockholders' equity:
Common stock, $.001 par value, 75,000,000 shares authorized,
20,397,500 and 19,207,500 shares issued and outstanding at
December 31, 1998 and 1997, respectively 21,178 20,090 20,398 19,208
Additional paid-in capital 1,072,051 672,108 672,051 198,848
Accumulated deficit (1,113,833) (143,942) (658,982) (38,835)
- --------------------------------------------------------------------------------------------------------------------------------
Total stockholders' equity (20,604) 548,256 33,467 179,221
- --------------------------------------------------------------------------------------------------------------------------------
$ 1,612,585 $ 1,978,384 $ 1,713,465 $ 916,173
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-24
<PAGE> 30
CCC COMMUNICATIONS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
For the period ended, June 30, June 30, December 31, December 31,
1999 1998 1998 1997
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues:
Communication services $ 2,898,004 $ 2,588,694 $ 5,595,424 $ 4,418,085
- -----------------------------------------------------------------------------------------------------------------------------------
Total revenues 2,898,004 2,588,694 5,595,424 4,418,085
- -----------------------------------------------------------------------------------------------------------------------------------
Operating expenses:
Communication services 2,456,248 2,151,102 4,784,892 3,883,108
General and administrative 822,766 501,268 1,339,890 580,401
- -----------------------------------------------------------------------------------------------------------------------------------
Total operating expenses 3,279,014 2,652,370 6,124,782 4,463,509
- -----------------------------------------------------------------------------------------------------------------------------------
Other income and (expense):
Other income (9,687) 7,617 28,089 6,589
Interest expense (64,154) (48,586) (118,878) --
- -----------------------------------------------------------------------------------------------------------------------------------
Net loss $ (454,851) $ (104,645) $ (620,147) $ (38,835)
- -----------------------------------------------------------------------------------------------------------------------------------
Net loss per share $ (0.02) $ (0.01) $ (0.03) $ --
- -----------------------------------------------------------------------------------------------------------------------------------
Weighted average number of shares and share
equivalents outstanding 20,526,782 20,089,000 19,824,337 19,207,500
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-25
<PAGE> 31
CCC COMMUNICATIONS CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
Additional
Common Stock Paid-in Accumulated Total
Shares Par Value Capital Deficit Equity
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Date of Inception, January 21, 1997 -- $ -- $ -- $ -- $ --
Issuance of common stock 19,207,500 19,208 198,848 -- 218,056
Net loss -- -- -- (38,835) (38,835)
- --------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1997 19,207,500 19,208 198,848 (38,835) 179,221
- --------------------------------------------------------------------------------------------------------------------
Issuance of common stock in connection
with acquisitions 485,000 485 408,773 -- 409,258
Issuance of common stock for services
and in settlement of liabilities 207,500 207 12,980 -- 13,187
Issuance of common stock for bonuses 1,013,000 1,013 -- -- 1,013
Issuance of common stock for cash 49,500 50 49,450 -- 49,500
Cancellation of common stock (565,000) (565) -- -- (565)
Issuance of common stock
warrants for cash -- -- 2,000 -- 2,000
Net loss -- -- -- (620,147) (620,147)
- --------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1998 20,397,500 20,398 672,051 (658,982) 33,467
- --------------------------------------------------------------------------------------------------------------------
Issuance of common stock for bonuses 780,000 780 -- -- 780
Capital investment from parent company -- -- 400,000 -- 400,000
Net loss -- -- -- (454,851) (454,851)
- --------------------------------------------------------------------------------------------------------------------
Balance, June 30, 1999 21,177,500 $ 21,178 $1,072,051 $(1,113,833) $ (20,604)
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-26
<PAGE> 32
CCC COMMUNICATIONS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
For the period ended, June 30, June 30, December 31, December 31,
1999 1998 1998 1997
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss $(454,851) $(104,645) $(620,147) $ (38,835)
Adjustments to reconcile net cash
used by operating activities:
Depreciation and amortization 103,710 17,940 48,983 23,332
Common stock issued for services -- -- 12,622 --
Common stock issued for bonuses 780 -- 1,013 --
Changes in assets and liabilities:
Accounts receivable 20,933 (248,274) 112,298 (561,340)
Inventories 6,183 -- (786) (2,500)
Prepaid expenses (8,258) (56,177) 9,411 (9,858)
Deferred charges 360 -- (50,360) --
Other assets 1,085 (360) (8,200) (12,462)
Accounts payable and accrued expenses (51,407) 309,121 419,560 576,952
- ----------------------------------------------------------------------------------------------------------------------
Net cash used by operations (381,468) (82,395) (75,606) (24,711)
- ----------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Purchase of certificates of deposit -- -- (35,648) --
Increase in security deposits (1,999) (70,610) (3,411) --
Purchase of intangible assets (7,466) (1,667) (85,033) --
Purchase of property and equipment (26,706) (696,393) (183,247) (158,936)
Assets acquired through merger, net of cash -- -- 220,182 --
- ----------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (36,171) (768,670) (87,157) (158,936)
- ----------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Proceeds from issuance of (principle payments under)
long-term debt (48,105) 552,055 183,976 --
Capital lease financing (49,024) (160,461) (75,413)
Net proceeds from issuance of common stock -- 474,141 49,500 218,056
Net proceeds from issuance of common stock warrants -- -- 2,000 --
Investment from parent company 400,000 -- -- --
- ----------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 302,871 865,735 160,063 218,056
- ----------------------------------------------------------------------------------------------------------------------
Net (decrease) increase in cash (14,123) 14,670 (12,700) 34,409
Cash, beginning of period 21,709 34,409 34,409 --
- ----------------------------------------------------------------------------------------------------------------------
Cash, end of period $ 7,586 $ 49,079 $ 21,709 $ 34,409
- ----------------------------------------------------------------------------------------------------------------------
Supplemental disclosure:
Interest paid during the period $ 48,608 $ -- $ 95,518 $ --
Income taxes paid during the period $ -- $ -- $ -- $ --
Issuance of long-term debt in connection
with acquisition $ -- $ -- $ 137,358 $ --
Purchase of equipment through capital lease obligation $ -- $ -- $ 160,000 $ 160,000
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-27
<PAGE> 33
CCC COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - ORGANIZATION
CCC Communications Corporation (the "Company") was incorporated in the State of
Nevada on January 21, 1997. The Company is a reseller of long-distance voice and
data telecommunications services to end users and resellers throughout the
United States. The Company also offers paging and cellular services in Alabama
and Florida. As of and for the years ending December 31, 1998 and 1997, the
Company had no foreign operations. The paging and cellular service sales
represent less than 10% individually and in the aggregate of revenue, operating
income, and assets of the Company. On February 18, 1997, Storm-tel, Inc.
("Storm-tel") (formerly Z-Tel, Inc.), a wholly-owned subsidiary of the Company,
was formed to provide tariffed long-distance telecommunications services to
resellers and consumers. It was incorporated in the State of Nevada and was
qualified and authorized to do business in the State of Florida on April 23,
1997. All significant intercompany accounts and transactions have been
eliminated upon consolidation. Prior to 1998, CCC Communications Corporation was
in the development stage.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting and reporting policies of the Company conform with generally
accepted accounting principles. The policies that materially affect the
financial position and results of operations are as follows:
Major Customers - The nature of the telecommunications industry is such that the
Company is dependent on several large clients for a significant portion of its
annual revenue. In 1997, the Company had two clients which together accounted
for 47% of the Company's revenue for the year. In 1998, the top two clients
accounted for 19% of the Company's annual revenue.
Fair Value of Financial Instruments - The carrying values of cash, certificates
of deposit, accounts receivable, accounts payable, notes payable, debt and
obligations under capital lease approximate fair value due to the short maturity
of these instruments.
Accounts Receivable - Accounts receivable are net of an allowance for doubtful
accounts of $391,785 and $68,916 at December 31, 1998 and 1997, respectively.
The Company establishes an allowance for doubtful accounts and anticipated
revenue adjustments based upon factors surrounding the credit risk of specific
subscribers, historical trends, and other information. The Company also reserves
specific accounts when considered appropriate.
F-28
<PAGE> 34
CCC COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Property and Equipment - Fixed assets are carried at cost and consist of
furniture, equipment and customized software. Depreciation is provided for
financial reporting purposes over the estimated useful lives of the assets,
which range from five to ten years, using the straight-line method beginning in
1998 for book purposes. The modified accelerated cost recovery system is used
for federal income tax purposes and for book purposes prior to 1998.
Inventory - Inventories are carried at the lower of cost or market using the
first-in, first-out method. The Company's inventories consist of pagers,
cellular telephones, phone system parts, and spare parts held for sale.
Intangible Assets - Intangible assets consist of various start-up costs of the
organization, a purchased customer base, and a non-compete agreement. These
items are carried at cost, and are amortized on a straight-line basis over the
estimated useful lives of the assets, which range from three to ten years.
Revenue Recognition - The Company's long distance revenues are recognized as
services are provided and billed to subscribers, the terms of which are specific
to each customer agreement.
Use of Estimates - The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Cash and Cash Equivalents - The Company considers all highly liquid financial
instruments purchased with an initial maturity of three months or less to be
cash equivalents.
Income Taxes - The Company follows the provisions of Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes," which requires the
recognition of deferred tax assets and liabilities for expected future tax
consequences of events that have been included in the Company's financial
statements or tax returns. Under this method, deferred tax assets and
liabilities are determined based on the difference between financial statement
and tax basis of assets and liabilities using enacted tax rates in effect when
these differences are expected to reverse. Valuation allowances are established,
when appropriate, to reduce deferred tax assets to the amount expected to be
realized.
F-29
<PAGE> 35
CCC COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Concentration of Credit Risk - Concentration of credit risk is limited to trade
receivables and is subject to the financial conditions of certain major clients.
As a general practice, the Company does not require collateral or other security
to support client receivables. The Company conducts periodic reviews of its
customer payment practices to minimize collection risks on trade receivables.
The majority of the Company's subscribers are wholesale and commercial
subscribers and are primarily located in seven states, which are not
concentrated in any specific geographic region of the United States.
Reclassification - Certain reclassifications have been made in the prior year's
financial statements to conform to the fiscal year 1998 presentation.
Long-Lived Assets - The Company has adopted the provisions of Statement of
Financial Accounting Standards No. 121, ("SFAS No. 121") "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of,"
and determined that no impairment loss needs to be recognized for applicable
assets. SFAS No. 121 requires that long-lived assets and certain identifiable
intangibles to be held and used or disposed of by an entity be reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. The Company has adopted this
statement and determined that no impairment loss need be recognized for
applicable assets.
Stock-Based Compensation - The Company has adopted the provisions of Statement
of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation," which encourages companies to record compensation cost for
stock-based employee compensation plans at fair value.
Earnings Per Share - The Company has adopted Statement of Financial Accounting
Standards No. 128, "Earnings Per Share," which requires presentation of basic
earnings per share ("Basic EPS") and diluted earnings per share ("Diluted EPS").
The computation of Basic EPS is computed by dividing income available to common
stockholders by the weighted average number of outstanding common shares during
the period. Diluted EPS gives effect to all dilutive potential common shares
outstanding during the period. The computation of Diluted EPS does not assume
conversion, exercise or contingent exercise of securities that would have an
anti-dilutive effect on earnings.
F-30
<PAGE> 36
CCC COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The shares used in the computations are as follows:
<TABLE>
<CAPTION>
=========================================================================
December 31, 1998 1997
-------------------------------------------------------------------------
<S> <C> <C> <C>
Basic EPS 19,824,337 19,207,500
Diluted EPS 19,824,337 19,207,500
=========================================================================
</TABLE>
Capital Structure - The Company has adopted Statement of Financial Accounting
Standards No. 129, "Disclosure of Information about Capital Structure," ("SFAS
No. 129"), which is applicable to all companies. Capital structure disclosures
required by SFAS No. 129 include liquidation preferences of preferred stock,
information about the pertinent rights and privileges of the outstanding equity
securities, and the redemption amounts for all issues of capital stock that are
redeemable at fixed or determinable prices on fixed or determinable dates. The
Company has no items which would be affected by this disclosure requirement.
Comprehensive Income - The Company has adopted Statement of Financial Accounting
Standards No. 130, "Reporting Comprehensive Income," which requires that changes
in amounts of certain items, including foreign currency translation adjustments
and gains and losses on certain securities be shown in the financial statements.
The Company has no items that represent comprehensive income, and therefore, has
not included a schedule of comprehensive income in the financial statements.
Unaudited Interim Financial Statements - The unaudited financial statements and
related notes thereto for the six months ended June 30, 1999 and 1998 include
all normal and recurring adjustments which in the opinion of management are
necessary for a fair presentation and are prepared on the same basis as the
audited annual statements. The interim results are not necessarily indicative of
the results that may be expected for the full year.
Disclosures About Segments of An Enterprise and Related Information - The
Company has adopted Statement of Financial Accounting Standards No. 131,
"Disclosures about Segments of an Enterprise and Related Information," ("SFAS
No. 131"). SFAS No. 131 changes the way public companies report information
about segments of their business in annual financial statements. It also
requires entity-wide disclosures about the products and services an entity
provides, the material countries in which it holds assets and reports revenues,
and its major customers. The Company has no significant segments that would
require separate disclosure.
F-31
<PAGE> 37
CCC COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Impact of Year 2000 Issue - During the year ended December 31, 1998, the Company
conducted an assessment of issues related to the Year 2000 and has made
necessary modifications needed in order to ensure that its computer systems will
properly utilize dates beyond December 31, 1999. The Company is in the process
of updating its switch equipment to be compliant. At this time, the Company
cannot determine the impact the Year 2000 will have on its key customers or
suppliers. If the Company's customers or suppliers do not convert their systems
to become Year 2000 compliant, the Company may be adversely impacted. The
Company is addressing these risks in order to reduce the impact on the Company.
NOTE 3 - NEW ACCOUNTING PRONOUNCEMENTS
The American Institute of Certified Public Accountants' Executive Committee
issued Statement of Position Number 98-1 ("SOP 98-1"), "Accounting for the Cost
of Computer Software Developed or Obtained for Internal Use." SOP 98-1 is
effective for fiscal years beginning after December 15, 1998. Management
believes that the Company is substantially in compliance with this pronouncement
and that the implementation of this pronouncement will not have a material
effect on the Company's financial position, results of operations or cash flows.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities," ("SFAS No. 133"). This statement establishes accounting
and reporting guidelines for derivatives and requires an establishment to record
all derivatives as assets or liabilities on the balance sheet at fair value.
Additionally, this statement establishes accounting treatment for four types of
hedges: hedges of changes in the fair value of assets or liabilities, firm
commitments, forecasted transactions and hedges of foreign currency exposures of
net investments in foreign operations. Any derivative that qualifies as a hedge,
depending upon the nature of that hedge, will either be offset against the
change in fair value of the hedged assets, liabilities or firm commitments
through earnings or recognized in other comprehensive income until the hedged
item is recognized in earnings. SFAS No. 133 is effective for years beginning
after June 15, 2000. The Company does not currently participate in these types
of financing activities and does not anticipate that the adoption of this
statement will have a material impact on its consolidated balance sheets,
statements of operations, or cash flows.
F-32
<PAGE> 38
CCC COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4 - ACQUISITIONS
In December 1997, under a reorganization agreement, the Company acquired 100% of
the common stock of Eclectic Enterprises, Inc., in exchange for 250,000 shares
of common stock. No financial information was available at the date of the
consummation of this acquisition.
In December 1997, CCC also acquired certain assets of Midwest Telephone Service,
Inc., a telephone communications service company, through a sale and purchase
agreement. CCC received equipment, a customer base, and non-compete agreements
for a cash purchase price of $129,000.
CCC acquired certain assets of TelCentral, a telecommunications company through
an agreement of merger dated March 4, 1998. CCC issued 200,000 shares of common
stock valued at $2.11 per share, $70,000 in cash and notes totaling $137,418 to
the two shareholders of TelCentral who entered into five-year non-compete
agreements. The total purchase price was $630,000. CCC canceled TelCentral's
stock upon merger.
Storm-tel, a wholly owned subsidiary of CCC, acquired certain assets and assumed
certain liabilities of Mobile Communications Systems ("MCS"), a company offering
cellular and paging services in the Tampa Bay area, through a sale and purchase
agreement dated May 22, 1998. The purchase was closed on August 1, 1998. CCC
issued 35,000 shares of stock to the stockholders of MCS in exchange for certain
assets and liabilities netting to $4,700. In settlement of two notes assumed in
the purchase, CCC issued an additional 15,000 shares of stock to two
individuals. The owners of MCS entered into five-year non-compete agreements;
however, no additional amounts were paid for these agreements.
Each of these acquisitions was accounted for using the purchase method of
accounting. CCC entered into lease agreements with a lease financing company,
Call Leasing, Inc. (see NOTE 11) to fund the Midwest and TelCentral
acquisitions. Equipment obtained in the acquisitions was signed over to Call
Leasing and serves as collateral on the leases. The Company also signed a
collateralized note with an individual to fund a portion of the Midwest
acquisition, with a portion of the assets acquired serving as collateral on the
note.
F-33
<PAGE> 39
CCC COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5 - CERTIFICATES OF DEPOSIT
During 1998, the Company acquired a business which had as part of its assets a
$15,000 one-year certificate of deposit at a bank in Florida to support a letter
of credit issued to a cellular air-time supplier. Subsequently, the Company
deposited $35,000 into a one-year certificate of deposit at another Florida bank
to increase the total letters of credit (see NOTE 14) provided by the Company to
the same supplier, in anticipation of increased volume. The Company also signed
a $35,000 promissory note in favor of the bank. The note is due August 24, 1999,
and bears interest at 8.5%. Certificates of deposit totaled $50,648 at December
31, 1998.
NOTE 6 - PROPERTY AND EQUIPMENT
Property and equipment consisted of the following:
<TABLE>
<CAPTION>
=========================================================================
December 31,
1998 1997
-------------------------------------------------------------------------
<S> <C> <C>
Leasehold improvements $ 3,566 $ 3,566
Office equipment 94,431 121,600
Idle equipment-switches 786,518 --
Less - Accumulated depreciation
(27,864) (10,070)
-------------------------------------------------------------------------
Net property and equipment $ 856,651 $ 115,096
=========================================================================
</TABLE>
Depreciation expense for property and equipment was $17,795 and $10,062 for the
years ended December 31, 1998 and 1997.
NOTE 7 - INTANGIBLE ASSETS
Intangible assets consisted of the following:
<TABLE>
<CAPTION>
=========================================================================
December 31,
1998 1997
-------------------------------------------------------------------------
<S> <C> <C>
Organization costs $ 135,437 $ 133,770
Customer base 88,366 5,000
Non-compete covenant 55,000 55,000
Less - Accumulated amortization (44,450) (13,262)
-------------------------------------------------------------------------
Net intangible assets $ 234,352 $ 180,508
=========================================================================
</TABLE>
Amortization expense was $34,188 and $13,731 for the years ended December 31,
1998 and 1997.
F-34
<PAGE> 40
CCC COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8 - DEFERRED CHARGES
As of December 31, 1998, deferred charges totaled $50,360. During 1998, the
Company signed a note payable to Rall Leasing in the amount of $62,500, in
exchange for $12,500 cash and a guarantee on a $50,000 letter of credit (see
NOTE 14) issued to one of its long-distance carriers. Rall Leasing is owned by
Lee Young, a related party (see NOTE 16). The guarantee on the letter of credit
is recorded as a deferred charge in the amount of $50,000.
NOTE 9 - CURRENT LIABILITIES
In 1998, the Company acquired a business with a line of credit agreement with a
bank. The amount available under the agreement was limited to $35,035, at an
interest rate of prime plus 1.5%. At December 31, 1998, the Company had an
outstanding balance of $35,000.
On August 24, 1998, the Company signed a promissory note evidencing a line of
credit in the amount of $35,000. The line of credit is collateralized by a
$35,000 CD and supports a $35,000 letter of credit issued to a supplier (see
NOTE 5). Principal and interest payments are due within 30 days of a draw, with
an interest rate set at prime. At December 31, 1998, the Company had not
borrowed against the line of credit.
The Company has a promissory note in the amount of $26,000 outstanding with a
related party at December 31,1998. The note bears interest at 12%, with
principal due on January 2, 1999, however at December 31, 1998 all interest had
been forgiven.
F-35
<PAGE> 41
CCC COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 10 - LONG-TERM DEBT
<TABLE>
<CAPTION>
=============================================================================================================
DECEMBER 31, 1998 1997
=============================================================================================================
<S> <C> <C>
Amount payable to an individual under a note agreement, principal payable in
equal monthly installments consistent with note terms, plus annual interest at
5.64%, due April 30, 2001 $ 81,887 $ --
Amount payable to a leasing company under a note agreement, principal payable in
equal monthly installments consistent with note terms, plus annual interest
at 12%, due January 31, 2000 62,500 --
Amount payable to an individual under a collateralized note agreement, principal
payable in equal monthly installments consistent with note terms, plus annual
interest at 12%, due January 1, 2000, collateralized by equipment
purchased 62,146 --
Subordinated notes payable to individuals under subordinated note agreements,
interest only payable quarterly and principal due upon maturity consistent with
note terms, annual interest at 12%, various maturity dates between July 15, 2001
and August 19, 2001
87,500 --
Amount payable to an individual under a note agreement, principal payable in
equal monthly installments consistent with note terms, plus annual interest at
5.64%, due April 30, 2001 27,301 --
- -------------------------------------------------------------------------------------------------------------
Total long-term debt 321,334
- -------------------------------------------------------------------------------------------------------------
Less current maturities (166,554) --
- -------------------------------------------------------------------------------------------------------------
$ 154,780 $ --
=============================================================================================================
</TABLE>
At December 31, 1998, future maturities on long-term debt are as follows:
<TABLE>
<S> <C>
1999 $ 166,554
2000 54,893
2001 99,887
---------
Total $ 321,334
=========
</TABLE>
F-36
<PAGE> 42
CCC COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 11 - OBLIGATIONS UNDER CAPITAL LEASE
<TABLE>
<CAPTION>
=============================================================================================================
DECEMBER 31, 1998 1997
=============================================================================================================
<S> <C> <C>
Amount payable to leasing company under capital lease agreement, principal
payable in equal monthly installments consistent with amended lease terms, no
interest rate specified, due January 1, 2000, collateralized by equipment
purchased through acquisition from Midwest Telephone Service, Inc. $ 118,320 $ 160,000
Amount payable to leasing company under capital lease agreement, principal
payable in equal monthly installments consistent with amended lease terms, no
interest rate specified, due January 1, 2001, collateralized by equipment
purchased through acquisition from TelCentral 126,267 --
- -------------------------------------------------------------------------------------------------------------
Total obligations under capital lease 244,587 160,000
- -------------------------------------------------------------------------------------------------------------
Less current maturities (102,224) (40,100)
- -------------------------------------------------------------------------------------------------------------
$ 142,363 $ 119,900
=============================================================================================================
</TABLE>
At December 31, 1998 present value of minimum capital lease payments
approximated the following:
<TABLE>
<S> <C>
=========================================================
December 31, 1999 $ 135,014
December 31, 2000 135,014
December 31, 2001 22,502
---------------------------------------------------------
292,530
Less amount representing interest (47,943)
---------------------------------------------------------
Net capital lease obligation $ 244,587
=========================================================
</TABLE>
Interest expense for the years ended December 31, 1998 and 1997 was $118,878 and
$0, respectively.
F-37
<PAGE> 43
CCC COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 12 - INCOME TAXES
The significant components of the net deferred tax assets consist of the
following:
<TABLE>
<CAPTION>
=========================================================================
December 31, 1998 1997
-------------------------------------------------------------------------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards $ 128,000 $ 5,900
Bad debts 153,000 --
-------------------------------------------------------------------------
Gross deferred income tax assets 281,000 5,900
Valuation allowance (281,000) (5,900)
-------------------------------------------------------------------------
Total deferred income tax liabilities -- --
-------------------------------------------------------------------------
Net deferred income tax assets $ -- $ --
=========================================================================
</TABLE>
The following summary reconciles differences from taxes at the statutory rates
with the effective rate:
<TABLE>
<CAPTION>
======================================================================
Year ended December 31, 1998 1997
----------------------------------------------------------------------
<S> <C> <C>
Federal income taxes at statutory rates (34.0)% (15.0)%
State taxes, net of federal benefit (5.0)% --
Losses without tax benefits 39.0% 15.0%
--------------------------------------------------------------------
Income taxes at effective rates 0% 0%
====================================================================
</TABLE>
Unused net operating losses for income tax purposes, expiring in various amounts
from 2017 through 2018 of approximately $327,000 are available at December 31,
1999 for carryforward against future years' taxable income. Under Section 382 of
the Internal Revenue Code, the annual utilization of this loss may be limited
due to changes in ownership. The tax benefit of these losses of approximately
$281,000 has been offset by a valuation allowance due to it being more likely
than not that the deferred tax assets will not be realized. The valuation
allowance for deferred tax assets increased by $275,100 during 1998.
F-38
<PAGE> 44
CCC COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 13 - STOCKHOLDERS' EQUITY
The Company's stock option plan provides for the granting of options to
employees, non-employee directors and non-employee consultants to purchase the
Company's stock. In addition, the Company has granted restricted stock to
several individuals. The board of directors administers the above plan and is
authorized to determine the key individuals to whom and the times which the
options and restricted stock are to be granted, the number of shares subject to
each option, or restricted stock issue, the applicable vesting schedule, and the
exercise price, when applicable. In connection with the merger with Progressive
Telecommunications Corporation, the Company entered into addendums to employment
agreement, signed by substantially all of the employees holding stock options,
which canceled those options effective January 1, 1999 (see NOTE 14 and 17).
The Company issued 175,000 warrants in connection with a subordinated note
offering. Each warrant carries the right to purchase a share of common stock for
$0.67 through January 15, 2000 and for $1.00 from January 15, 2000 through July
15, 2001. The Company also issued a total of 47,500 warrants as signing bonuses
(see NOTE 14). Each warrant carries the right to purchase one share of common
stock for $0.67, expiring in May of 2000. In addition, CCC issued warrants to a
noteholder to purchase 125,000 shares of common stock at an exercise price of
$0.67 per share through February 1, 1999 and $1.00 for 18 months thereafter. The
same noteholder was issued an option to purchase 155,000 shares of common stock
at $0.67 per share through February 1, 1999 and $1.00 per share thereafter until
the note is paid in full. The noteholder has the right to acquire the balance of
the shares which were not acquired with the proceeds of the note for cash at the
option prices. In relation to an acquisition agreement, two individuals
purchased an aggregate of 200,000 warrants at $0.01 each. Each warrant is
exercisable for one share of common stock at $0.80 per share through February
20, 1999, $1.20 per share through February 20, 2000, and $1.80 per share
expiring February 20, 2001. As of December 31, 1998, all warrants and options
remain unexercised.
F-39
<PAGE> 45
CCC COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 13 - STOCKHOLDERS' EQUITY (CONTINUED)
At December 31, 1998, 707,500 shares of common stock are reserved for future
issuance as follows:
<TABLE>
<S> <C>
====================================================
Stock option plan 5,000
Other options 155,000
Bonus warrants 47,500
Purchased warrants 200,000
Other warrants 300,000
----------------------------------------------------
Total 707,500
====================================================
</TABLE>
NOTE 14 - COMMITMENTS AND CONTINGENCIES
The Company has entered into written employment agreements in effect during 1998
with certain key employees. The documents set forth terms of employment,
termination and/or resignation, compensation, stock and warrants issued, etc.
Employment terms per the agreements range from two to three years. Annual base
salaries per the employment agreements range from $30,000 to $120,000. All
agreements provide for employee benefits. Certain of the agreements also contain
covenants-not-to-compete for two years following termination of the agreement.
Subsequently, the majority of the remaining employees covered under the above
agreements signed addendums extending their employment terms for three years
from January 1, 1999. Under the terms of the amendments, base salaries
increased, additional shares of common stock were issued, and all outstanding
warrants and options were canceled.
CCC has entered into agreements with various wholesale long-distance carriers to
procure service for wholesale and retail resale. The terms of the agreements
vary but in some instances CCC has committed to maintaining certain minimum
monthly usage levels or pay the difference between the agreed upon minimum and
the actual usage.
CCC has signed independent agent (IA) agreements with various parties,
authorizing them to sell phone service to customers. The agreement specifies
various rates of commission at which the IA will be paid, as well as the
circumstances and timing of payment. CCC agrees to continue paying an agent
commission on customer usage, even if the agreement is terminated.
F-40
<PAGE> 46
CCC COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 14 - COMMITMENTS AND CONTINGENCIES (CONTINUED)
In accordance with the terms of the Mobile Communications Systems acquisition
agreement, CCC entered into an employment agreement with former owner Martin
McDaniel, and a consulting agreement with former owner James Kraus. The
agreement with Mr. Kraus has not been fulfilled due to extenuating
circumstances. Under the agreement, Mr. Kraus was guaranteed a minimum of $6,700
in consulting work during the first year after the agreement was signed. He was
also issued 2,500 shares of common stock as a signing bonus and granted an
option to buy an additional 10,000 shares at $0.67 within two years of the
agreement date. Mr. McDaniel was granted an option to buy 37,500 shares at $0.67
within two years of the agreement date (See NOTE 13).
As mentioned in NOTES 5 and 8, the Company has unused letters of credit totaling
$100,000 at December 31, 1998.
The Company leases office space at various locations throughout the United
States. These leases contain various renewal terms and one includes an
escalation clause. The Company's lease for its corporate offices expired on July
31, 1998. The Company is currently on a month-to-month lease with a 60-day
notice requirement prior to vacating the premises. The Company also leased
computer equipment through the end of 1998, which it then opted to purchase.
Total rent expense was $97,231 and $24,755 in 1998 and 1997, respectively.
Future minimum rental commitments due under operating leases with initial or
remaining terms greater than 12 months as of December 31, 1998 are as follows:
<TABLE>
<CAPTION>
================================================
Minimum
Year ending December 31, Commitments
------------------------------------------------
<S> <C>
1999 $ 28,882
2000 18,000
2001 4,500
----------------------------------------------
Total $ 51,382
==============================================
</TABLE>
F-41
<PAGE> 47
CCC COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 15 - GOING CONCERN
As shown in the accompanying financial statements, the Company incurred net
losses of $620,000 and $39,000 during the years ended December 31, 1998 and
1997, respectively. The Company's current liabilities exceeded its current
assets by $838,000 and $9,000 as of those respective dates. These factors create
substantial doubt about the Company's ability to continue as a going concern.
Management of the Company has entered into a merger agreement to provide an
infusion of capital. Under the terms of the agreement, the acquiring Company is
to provide CCC with $2,500,000 within 18 months of the execution date. As of May
12, 1999, the Company had received $400,000 (see NOTE 17). The ability of the
Company to continue as a going concern is dependent on final acceptance of the
plan by the Company's stockholders and the provision of capital. The financial
statements do not include any adjustments that might be necessary if the Company
is unable to continue as a going concern.
NOTE 16 - RELATED PARTY TRANSACTIONS
CGA (Communications Group of America) founded by Tom Chubokas, CEO of CCC
Communications, and currently owned by his wife, is an independent
telecommunications services sales organization. CGA serves as an independent
agent for the Company, receiving commissions on sales of CCC services. CGA then
distributes the commission to its own independent agents as applicable. During
1998, CGA earned $199,900 in commissions from the Company. Additionally, CGA
holds a note payable from the Company in the amount of $26,000 bearing interest
at 12%. As of December 31, 1998, accumulated interest on the note was forgiven.
Lee Young serves on the Board of Directors of CCC Communications and acts as
legal advisor to the Company. In addition, Mr. Young owns two financing
companies, Call Leasing and Rall Leasing, based in Missouri. These leasing
companies have provided the Company with funding for acquisitions, as well as a
guarantee on a letter of credit. The leasing companies hold notes from the
Company originally totaling $382,500, with year-end balances due totaling
$307,087. At December 31, 1998, the Company owed Mr. Young $54,595 in legal
fees.
F-42
<PAGE> 48
CCC COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 17 - SUBSEQUENT EVENTS
On January 27, 1999, the Company entered into a merger agreement with
Progressive Telecommunications Corporation ("PTC"). PTC acquired all the
outstanding shares of the Company in exchange for 3,033,940 shares of PTC common
stock plus $1,500,000. PTC also agreed to provide $2,500,000 of capital during
the next 18 months from the execution of the agreement.
As of May 12, 1999, $400,000 had been provided to the Company, and the merger
agreement was amended. The next $250,000 of funding received by PTC would be
split 50/50 between PTC and the Company. Thereafter, 80% of the funds received
would be set aside for the Company and 20% would be for PTC. This arrangement
will remain in effect until the balance of the $1,100,000 has been provided to
the Company. If the $1,100,000 is not received by August 15, 1999, PTC will
issue up to 1,100,000 shares of common stock, pro rata to the shareholders of
the Company. PTC will also issue 500,000 warrants to purchase the shares of
PTC's common stock for $2.25 per share. The amended agreement also called for
PTC to provide the $2,500,000 of capital during the next fourteen months from
the execution of the agreement.
On June 7, 1999, Marquee Entertainment, Inc. agreed to acquire 100% of the
outstanding common stock of PTC from the shareholders of PTC, in exchange for
45,000,000 shares of Marquee. The closing is conditioned upon, among other
things, an audit of the financial statements of PTC and its subsidiaries. The
agreement also provides for Marquee to amend its certificate of incorporation to
change its name to Progressive Telecommunications Corporation.
F-43
