SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 8-K/A
Amendment No. 4 to Form 8-K
Current Report
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): November 20, 1995
XPEDITE SYSTEMS, INC.
- --------------------------------------------------------------------------------
(Exact Name of Registrant as specified in its charter)
Delaware 0-23394 22-2903158
- --------------------------------------------------------------------------------
(State or other jurisdiction (Commission File (IRS Employer
of incorporation) Number) Identification No.)
446 Highway 35, Eatontown, New Jersey 07724
- --------------------------------------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (908) 389-3900
Not Applicable
- --------------------------------------------------------------------------------
(Former name or former address, if changed since last report)
This Report consists of 81 pages.
<PAGE>
Item 7. Financial Statements and Exhibits.
(a) Financial statements of businesses acquired.
Swift Global Communications Inc. and Subsidiaries Consolidated
Financial Statements for the years ended August 31, 1994 and
1995.
Swift Global Communications Inc. and Subsidiary Consolidated
Financial Statements for the years ended August 31, 1992 and
1993.
ViTel International Holding Company, Inc. Consolidated Condensed
Financial Statements for the nine-month period ended September
30, 1995 (unaudited)*
ViTel International Holding Company, Inc. Consolidated Financial
Statements for the years ended June 30, 1994 and 1995.
Comwave Communications AG Revised Consolidated Report and
Financial Statements in Swiss Francs for the year ended
December 31, 1994 and the nine-month period ended September
30, 1995.
(b) Pro forma financial information.
Xpedite Systems Inc. Pro Forma Condensed Combined Financial
Statements (unaudited).*
(c) Exhibits.
2.1 Agreement and Plan of Merger, dated as of November 20, 1995,
among the Registrant, SGC Acquisition Corp., a Delaware
corporation, and Swift Global Communications Inc., a Delaware
corporation.*
2.2 Stock Purchase Agreement, dated as of November 20, 1995, among
the Registrant, ViTel International Holding Company, Inc., a
Delaware corporation ("ViTel"), and the stockholders of ViTel
identified therein.*
2.3 Stock Purchase Agreement, dated as of November 20, 1995, among
the Registrant, Comwave Communications AG, a Swiss corporation
("Comwave"), and Computainer Systems (Global) Inc., a British
Virgin Islands corporation which was the sole shareholder of
Comwave.*
3.2 Amended and Restated Certificate of Incorporation of the
Registrant.**
3.3 Amended and Restated By-laws of the Registrant.**
4.1 Specimen Certificate for Common Stock of the Registrant.**
4.2 Shareholders Agreement, dated as of November 20, 1995, among the
Registrant, David Epstein, Stuart Epstein, Robert Epstein, APA
Excelsior III, L.P., a Delaware limited partnership, Coutts &
Co. (Jersey), Custodian for APA Excelsior III/Offshore, L.P., a
Channel Islands corporation, CIN Venture Nominees, Ltd., a
United Kingdom corporation, APA/Fostin Pennsylvania Venture
Capital Fund, L.P., a New York limited partnership, 11313 Yukon
Ltd., a Yukon corporation, George Abi Zeid, Fortune Partner
Investments Ltd., a British Virgin Islands corporation, Gold
Chalet Overseas Ltd., a British Virgin Islands corporation,
Barclay
2
<PAGE>
Holdings Corporation, a British Virgin Islands corporation, Zeev
Remez, Ian Wilder, Paul Leslie Hammond, Roy B. Andersen, Jr.,
Stuart S. Levy, Max A. Slifer and Dennis Schmaltz.*
- ----------
* Previously filed.
** Incorporated by reference to the Registrant's Registration Statement on
Form S-1, Registration No. 33- 73258, originally filed with the Securities
and Exchange Commission on December 22, 1993, and declared effective on
February 11, 1994.
3
<PAGE>
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
XPEDITE SYSTEMS, INC.
By: /s/ Stuart S. Levy
Stuart S. Levy
Vice President-Finance and
Chief Financial Officer
Date: June 26, 1996
S-1
<PAGE>
INDEX TO FINANCIAL STATEMENTS
Sequentially
Description Numbered Page
----------- -------------
Swift Global Communications Inc. and Subsidiaries Consolidated
Financial Statements for the years ended August 31, 1994 and 1995 6
Swift Global Communications Inc. and Subsidiary Consolidated Financial
Statements for the years ended August 31, 1992 and 1993 25
ViTel International Holding Company, Inc. Consolidated Condensed
Financial Statements for the nine-month period ended September 30,
1995 (unaudited)* -
ViTel International Holding Company, Inc. Consolidated Financial
Statements for the years ended June 30, 1994 and 1995 41
Comwave Communications AG Revised Consolidated Report and Financial
Statements in Swiss Francs for the year ended December 31, 1994 and
the nine-month period ended September 30, 1995 64
Xpedite Systems Inc. Pro Forma Condensed Combined Financial Statements
(unaudited)* -
- --------
* Previously filed.
<PAGE>
SWIFT GLOBAL COMMUNICATIONS, INC.
AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED AUGUST 31, 1995 AND 1994
<PAGE>
SWIFT GLOBAL COMMUNICATIONS, INC.
AND SUBSIDIARIES
INDEX
FOR THE YEARS ENDED AUGUST 31, 1995 AND 1994
INDEPENDENT AUDITORS' REPORT
CONSOLIDATED BALANCE SHEETS -
AUGUST 31, 1995 AND 1994 EXHIBIT A
CONSOLIDATED STATEMENTS OF INCOME FOR THE
YEARS ENDED AUGUST 31, 1995 AND 1994 EXHIBIT B
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED AUGUST 31, 1995 AND 1994 EXHIBIT C
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR
THE YEARS ENDED AUGUST 31, 1995 AND 1994 EXHIBIT D
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1 TO 13
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Shareholders and Board of Directors
Swift Global Communications, Inc.
Glen Head, New York
We have audited the accompanying consolidated balance sheets of Swift Global
Communications, Inc., and Subsidiaries as of August 31, 1995 and 1994, and the
related consolidated statements of income, shareholders' equity and cash flows
for the years then ended. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our previously issued report dated October 25, 1995 we stated that the August
31, 1993 financial statements, audited by other auditors, did not fairly present
financial position, results of operations, and cash flows in conformity with
generally accepted accounting principles due to the misapplication of accounting
principles with regard to product development costs. As stated in Note 11, the
Company has corrected this error by restating the August 31, 1993 financial
statements, and accordingly, our present opinion of the August 31, 1995 and 1994
financial statements, as presented herein, is different from that expressed in
our previous report.
In our opinion, the consolidated financial statements referred to above presents
fairly, in all material respects, the financial position of Swift Global
Communications, Inc. and Subsidiaries as of August 31, 1995 and 1994, and the
consolidated results of their operations and their cash flows for the years then
ended in conformity with generally accepted accounting principles.
/S/ David Berdon & Co. LLP
Certified Public Accountants
New York, New York
October 25, 1995 (except for
Notes 1, 6, 7, 8, 11, 12 and 13,
as to which the date is May 31, 1996)
<PAGE>
EXHIBIT A
Page 1 of 2
SWIFT GLOBAL COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AUGUST 31, 1995 AND 1994
ASSETS
1 9 9 5 1 9 9 4*
---------- ----------
CURRENT ASSETS:
Cash and cash equivalents (Note 1(f) and (g)) $1,155,027 $1,471,058
Accounts receivable (net of allowance
for uncollectible accounts of $389,000 in
1995 and $130,000 in 1994) (Notes 1(f) and 12) 3,235,347 3,195,769
Loans receivable - related parties (Note 2) 654,018 73,915
Prepaid expenses and other current assets 52,177 61,093
Security deposit 350,000 --
---------- ----------
TOTAL CURRENT ASSETS 5,446,569 4,801,835
PROPERTY AND EQUIPMENT - NET (Notes 1(c),
3 and 5) 3,350,986 2,944,833
OTHER ASSETS:
Goodwill (net of accumulated
amortization of $8,125 in 1995 and $2,125
in 1994) (Note 1(e)) 161,875 167,875
Security deposits 184,932 116,772
---------- ----------
TOTAL OTHER ASSETS 346,807 284,647
---------- ----------
$9,144,362 $8,031,315
========== ==========
*Reclassified to conform to August 31, 1995 presentation
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
EXHIBIT A
Page 2 of 2
SWIFT GLOBAL COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AUGUST 31, 1995 AND 1994
LIABILITIES AND SHAREHOLDERS' EQUITY
1 9 9 5 1 9 9 4*
---------- ----------
CURRENT LIABILITIES:
Accounts payable $3,488,059 $2,351,795
Accrued expenses payable (Note 4) 960,830 494,334
Accrued expenses payable - related parties
(Notes 8(c), 9 and 10) 271,525 --
Current portion of long-term debt (Note 5) -- 608,676
Current portion of long-term debt - related
party (Note 5) -- 200,000
Obligations under capital leases -
current portion (Note 8) 2,582 23,182
Income taxes payable (Note 7) 260,711 274,000
Other current liabilities 102,949 191,280
Loan payable - related party (Note 10) 70,215 --
---------- ----------
TOTAL CURRENT LIABILITIES 5,156,871 4,143,267
OTHER LIABILITIES:
Obligations under capital leases (Note 8) -- 1,352
Deferred income taxes payable (Note 7) 396,000 483,717
Accrued postretirement benefits (Note 8(c)) 37,727 22,500
---------- ----------
TOTAL OTHER LIABILITIES 433,727 507,569
---------- ----------
TOTAL LIABILITIES 5,590,598 4,650,836
---------- ----------
MINORITY INTEREST 4,243 --
---------- ----------
COMMITMENTS AND CONTINGENCIES (Note 8)
SHAREHOLDERS' EQUITY (Notes 6 and 11):
Common stock, $.01 par value:
10,000,000 shares authorized;
2,112,189 issued and outstanding 21,122 21,122
Additional paid-in capital 2,983,478 2,999,478
Retained earnings 544,921 359,879
---------- ----------
TOTAL SHAREHOLDERS' EQUITY 3,549,521 3,380,479
---------- ----------
$9,144,362 $8,031,315
========== ==========
*Reclassified to conform to August 31, 1995 presentation
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
EXHIBIT B
SWIFT GLOBAL COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED AUGUST 31, 1995 AND 1994
1995 1994
------------ ------------
SALES (Notes 12 and 13):
Fax $ 11,115,666 $ 8,845,148
Telex 4,325,465 2,801,364
Equipment and other 2,023,844 903,112
------------ ------------
17,464,975 12,549,624
COST OF GOODS SOLD:
Fax 6,968,680 5,015,332
Telex 2,537,010 1,351,499
Equipment and other 976,483 463,573
------------ ------------
10,482,173 6,830,404
GROSS PROFIT 6,982,802 5,719,220
------------ ------------
EXPENSES (Note 10):
Selling 1,439,175 1,218,876
General and administrative 4,364,165 3,792,232
Provision for doubtful accounts 858,188 80,242
Interest 34,356 196,236
------------ ------------
TOTAL EXPENSES 6,695,884 5,287,586
------------ ------------
INCOME BEFORE PROVISION FOR INCOME TAX
AND MINORITY INTEREST 286,918 431,634
Provision for income tax (Note 7) 97,633 247,948
------------ ------------
NET INCOME BEFORE MINORITY INTEREST 189,285 183,686
Minority interest (4,243) --
------------ ------------
NET INCOME $ 185,042 $ 183,686
============ ============
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
EXHIBIT C
SWIFT GLOBAL COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (NOTE 6)
FOR THE YEARS ENDED AUGUST 31, 1995 AND 1994
<TABLE><CAPTION>
COMMON STOCK
---------------------
TOTAL
NUMBER PAID-IN RETAINED TREASURY SHAREHOLDERS'
OF SHARES AMOUNT CAPITAL EARNINGS STOCK EQUITY
--------- ------ ------- -------- ----- ------
<S> <C> <C> <C> <C> <C> <C>
BALANCE - SEPTEMBER 1, 1993 10,857 $ 112,605 $ -- $ 294,733 $ (7,545) $ 399,793
Net income for the year -- -- -- 183,686 -- 183,686
Issuance of common stock 200 -- -- -- -- --
Purchase of common stock -- -- -- -- (203,000) (203,000)
Retirement and recapitalization
of common stock (267) (92,005) -- (118,540) 210,545 --
Common stock dividend 2,049,192 -- -- -- -- --
Exercise of warrants and waiver
of purchase rights 52,207 522 (522) -- -- --
Capital contribution -- -- 3,000,000 -- -- 3,000,000
----------- ----------- ----------- ----------- ----------- -----------
BALANCE - AUGUST 31, 1994 2,112,189 21,122 2,999,478 359,879 -- 3,380,479
Repurchase of warrants -- -- (16,000) -- -- (16,000)
Net income for the year -- -- -- 185,042 -- 185,042
----------- ----------- ----------- ----------- ----------- -----------
BALANCE - AUGUST 31, 1995 2,112,189 $ 21,122 $ 2,983,478 $ 544,921 $ -- $ 3,549,521
=========== =========== =========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
EXHIBIT D
Page 1 of 2
SWIFT GLOBAL COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED AUGUST 31, 1995 AND 1994
1995 1994*
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 185,042 $ 183,686
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 680,039 537,986
Deferred income taxes (benefit) (87,717) 99,978
Bad debts 858,188 80,242
Minority interest 4,243 --
Changes in assets and liabilities:
Decrease (increase) in:
Accounts receivable (897,766) (1,452,609)
Prepaid expenses and other current assets 8,916 315,337
Security deposits (418,160) (19,803)
Increase (decrease) in:
Accounts and accrued expense payable 1,874,285 (711,141)
Other current liabilities (88,331) 120,311
Income taxes payable (13,289) 147,900
Accrued postretirement benefits 15,227 22,500
----------- -----------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 2,120,677 (675,613)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
(Increase) decrease in loans receivable (580,103) 456,246
Expenditures for property and equipment (1,077,692) (676,613)
Increase in goodwill (2,500) (170,000)
----------- -----------
NET CASH (USED IN) INVESTING ACTIVITIES (1,660,295) (390,367)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in loan payable - related party 70,215 --
Proceeds from long-term debt -- 610,000
Repayment of long-term debt (808,676) (1,013,278)
Payments of capital lease obligations (21,952) (32,150)
Capital contribution -- 3,000,000
Purchase of common stock -- (203,000)
Purchase of warrants (16,000) --
----------- -----------
NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES (776,413) 2,361,572
----------- -----------
NET (DECREASE) INCREASE IN CASH (Carried forward) (316,031) 1,295,592
*Reclassified to conform to August 31, 1995 presentation
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
EXHIBIT D
Page 2 of 2
SWIFT GLOBAL COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED AUGUST 31, 1995 AND 1994
1995 1994
----------- -----------
NET (DECREASE) INCREASE IN CASH (Brought forward) $ (316,031) $ 1,295,592
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 1,471,058 175,466
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 1,155,027 $ 1,471,058
=========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for
Interest $ 42,437 $ 178,964
=========== ===========
Income taxes $ 198,639 $ 70
=========== ===========
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND
FINANCING ACTIVITIES:
Retirement of treasury stock $ -- $ 210,545
=========== ===========
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
Page 1 of 10
SWIFT GLOBAL COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Principles of Consolidation
The accompanying consolidated financial statements include the accounts
of Swift Global Communications, Inc. and two subsidiaries: Swift Global
Communications (HK) Limited ("Hong Kong"), a 95%-owned Hong Kong
corporation and Swift Global International, Ltd., a wholly-owned
corporation. All material intercompany accounts and transactions have
been eliminated.
(b) Line of Business
The principal business activity of the Company is to route telex and
facsimile messages via their computerized transmission network. The
Company operates internationally and has entered into agreements with
companies ("nodes") in various countries. In addition, the Company
sells communications equipment to the nodes.
(c) Property and Equipment
Property and equipment is stated at cost, less accumulated depreciation
and amortization. Depreciation is computed using the straight-line
method based on the estimated useful lives of the respective assets (5
to 10 years). Leasehold improvements are being amortized on a
straight-line basis over the terms of the respective leases.
Maintenance and repairs are charged to expense as incurred.
(d) Translation of Foreign Currency
The Company translates the foreign currency financial statements of
Hong Kong in accordance with the requirements of Statement of Financial
Accounting Standards No. 52, "Foreign Currency Translation". If
material, translation adjustments are accumulated and reported in a
separate component of shareholders' equity and are excluded from the
determination of net income. Gains or loss from foreign currency
transactions, which are immaterial, are included in the accompanying
statements of income.
(e) Goodwill
Goodwill, relating to the purchase of additional shares of Hong Kong
common stock, is being amortized using the straight-line method over a
period of twenty years.
(continued)
<PAGE>
Page 2 of 10
SWIFT GLOBAL COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
(f) Concentrations of Credit Risk
Financial instruments which potentially subject the Company to
concentrations of credit risk consist principally of cash and accounts
receivable. At August 31, 1995, the Company has substantially all its
cash on deposit with one financial institution. Concentrations of
credit risk with respect to accounts receivable are limited due to a
large customer base and its geographic dispersion.
(g) Cash and Cash Equivalents
The Company considers all highly liquid investments purchased with a
maturity of three months or less to be cash equivalents.
NOTE 2 - LOANS RECEIVABLE
At August 31, 1995 and 1994, loans receivable consist primarily of
noninterest-bearing advances to shareholders, employees and related
entities which are payable on demand.
NOTE 3 - PROPERTY AND EQUIPMENT
Property and equipment at August 31, 1995 and 1994 is summarized as
follows:
1995 1994
---- ----
Computer equipment $4,690,328 $3,962,252
Computer software 1,411,678 1,322,886
Computer software-in-progress 316,351 116,246
Assets under capital leases 125,982 125,982
Transportation equipment 169,353 169,353
Furniture and fixtures 188,787 141,451
Leasehold improvements 306,749 293,366
---------- ----------
7,209,228 6,131,536
Less, accumulated depreciation
and amortization 3,858,242 3,186,703
---------- ----------
$3,350,986 $2,944,833
========== ==========
<PAGE>
Page 3 of 10
SWIFT GLOBAL COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4 - ACCRUED EXPENSES
Accrued expenses consists of the following:
1995 1994
---- ----
Cost of service $356,944 $213,670
Consulting and professional fees 297,500 122,835
Other 306,386 157,829
-------- --------
$960,830 $494,334
======== ========
NOTE 5 - LONG-TERM DEBT
1995 1994
-------- --------
At August 31, 1995 and 1994, respectively,
long-term debt consists of the following:
Note payable, collateralized by certain
equipment, due in monthly installments
of $4,000, plus interest at 10%; the
note was repaid in January 1995 $ - $391,550
Note payable - collateralized by certain
equipment; due in monthly
installments of $6,944 plus interest at 12%;
balance prepaid in September 1994 - 48,578
8% promissory note - principal and interest
due March 1, 1995; collateralized by 95,455
shares of common stock, and guaranteed by
an officer/shareholder of the Company - 160,000
12% promissory notes - payable to certain
shareholders; balance prepaid in
September 1994 - 200,000
Sundry - at interest rates from 15.9% to
24% - 8,548
-------- --------
$ - $808,676
======== ========
<PAGE>
Page 4 of 10
SWIFT GLOBAL COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6 - SHAREHOLDERS' EQUITY
(a) Stock Dividend
In July 1994, the Board of Directors approved an increase in the number
of its authorized shares from 10,000 (no par value) to 10,000,000 ($.01
par value), and declared a stock dividend of approximately 190 shares
for each share held.
(b) Common Stock Warrants
(i) On August 26, 1993, 275 warrants, each to purchase one share of
common stock, were issued in connection with a loan. At the
date of issuance, the exercise price exceeded the fair value of
the Company's common stock. The Company deemed the warrants of
no value as of the date of issue. On February 24, 1994, an
additional 75 warrants were issued. After giving effect to the
aforementioned July 1994 stock dividend, 66,818 warrants were
outstanding at an exercise price of $1.17 per share. The
holder of the warrants had the ability to cause the Company to
purchase the warrants at a price based on a formula specified
in the warrants.
In connection with the stock purchase agreement (see (e) below)
52,207 warrants were exercised at an exercise price of $61,082.
The holder received $61,082 in exchange for waiving its right
to cause the Company to purchase the remaining outstanding
warrants.
The remaining 14,611 common stock warrants expire on December
31, 2013. Each warrant is convertible into one share of common
stock at a price of $1.17 per share. The warrants are callable
on December 30, 2007 and each subsequent December 30, provided
that the Company shall call no more than 10% of the warrants
outstanding on the prior December 31. The call price shall be
the greater of:
(1) 8.5 times earnings before interest, taxes and
depreciation and amortization.
(2) 3.5 times book value per share.
(3) The highest price per share paid during the prior 750
days to or by the Company or its two largest
shareholders, less the exercise price then in effect
multiplied by 11,000 and divided by the aggregate number
of shares outstanding on the date of agreement to buy or
sell such stock.
(continued)
<PAGE>
Page 5 of 10
SWIFT GLOBAL COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6 - SHAREHOLDERS' EQUITY
(b) Common Stock Warrants (continued)
(ii) On February 28, 1994, additional warrants, each to purchase one
share of common stock, were issued in connection with a loan.
At the date of issuance, the exercise price exceeded the fair
value of the Company's common stock. The Company deemed the
warrants of no value as of the date of issue. After giving
effect to the July 1994 stock dividend, 100,000 warrants were
outstanding. In January 1995, the Company repurchased the
warrants for $16,000.
(c) Issuance of Common Stock
In February 1994, the Company issued 200 shares of common stock to a
former employee/shareholder due to an erroneous allocation of a stock
repurchase in prior years. Upon issuance of such shares, the former
employee/shareholder rescinded prior claims made against the Company.
(d) Treasury Stock
In February 1994, the Company repurchased 200 shares of common stock
for $203,000. Prior to the aforementioned stock dividend, all of the
Company's treasury stock was retired.
(e) Stock Purchase Agreement
On July 22, 1994, a stock purchase agreement was effected, under which
the shareholders of the Company sold 75% of their stock. Under the
terms of the agreement, the purchaser was required to make a $3 million
capital contribution to the Company.
NOTE 7 - INCOME TAXES
The income tax provision for the years ended August 31, 1995 and 1994
is comprised of the following:
1 9 9 5 1 9 9 4
------------------ -----------------
Current:
Federal $134,781 $ 98,800
State and local 29,543 34,170
Foreign $21,026 $33,500
Benefit of net
operating loss
carryforward - 21,026 (18,500) 15,000
------- -------- ------- --------
185,350 147,970
-------- --------
Deferred:
Federal (72,292) 72,578
State and local (15,425) 27,400
-------- --------
(87,717) 99,978
-------- --------
$ 97,633 $247,948
======== ========
(continued)
<PAGE>
Page 6 of 10
SWIFT GLOBAL COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7 - INCOME TAXES (Continued)
The deferred tax liability reflects the net tax effect of temporary
differences between the carrying amount of assets and liabilities for
financial reporting purposes and amounts used for income tax purposes.
Significant components of the Company's deferred tax liabilities and
assets at August 31, 1995 and 1994 are as follows:
1995 1994
Deferred tax liabilities:
Property and equipment $525,000 $508,000
-------- --------
Deferred tax assets:
Allowance for uncollectible accounts 102,000 -
Other 27,000 24,283
-------- --------
129,000 24,283
Less, valuation allowance - -
-------- --------
129,000 24,283
Net deferred tax liability $396,000 $483,717
======== ========
Reconciliation of the statutory federal income tax rate to the
Company's effective tax rate for the years ended August 31, 1995 and
1994 is as follows:
1 9 9 5 1 9 9 4
------------------- ------------------
Amount % Amount %
Tax at U.S. statutory
rate $97,552 34.0 $146,756 34.0
Change in estimated
tax rates from an
average graduated federal
income tax rate to the
highest statutory federal
income tax rate - - 45,555 10.5
State income taxes,
net of federal income
tax benefit 9,318 3.2 40,637 9.4
Foreign income taxes 21,026 7.3 15,000 3.5
Reduction of taxes
provided in prior
years (30,263) (10.5) - -
------- ---- -------- ----
$97,633 34.0 $247,948 57.4
======= ==== ======== ====
<PAGE>
Page 7 of 10
SWIFT GLOBAL COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8 - COMMITMENTS AND CONTINGENCIES
(a) Capital Leases
The Company leases various computer equipment and automobiles under
long-term lease agreements. Future minimum payments under the capital
leases with initial terms of one year or more consist of the following
at August 31, 1995 and 1994:
1995 1994
---- ----
Minimum lease payments $3,796 $34,164
Less, amounts denoting interest 1,214 9,630
------ -------
Present value of minimum lease payments $2,582 $24,534
====== =======
(b) Operating Leases
The Company leases its office facilities under noncancellable operating
leases expiring at various dates through 2002.
Future minimum payments required under these leases are as follows:
Year Ending August 31,
1996 $ 296,000
1997 251,000
1998 256,000
1999 262,000
2000 163,000
2001 and thereafter 82,000
----------
$1,310,000
==========
In addition to the above minimum payments, certain of the leases
provide for escalation of rentals based upon increases in lessors'
operating expenses over a specified base.
Rent expense (net) aggregated $324,158 and $231,498 for the years ended
August 31, 1995 and 1994, respectively.
(continued)
<PAGE>
Page 8 of 10
SWIFT GLOBAL COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8 - COMMITMENTS AND CONTINGENCIES (Continued)
(c) Employment Agreements
The Company has an employment agreement with one of its employees for
his lifetime, whereby a $4,000 salary will be paid to the employee
monthly for services as defined in the agreement. In addition, this
employee receives commissions on sales that he generates. Commissions
earned approximated $89,200 and $94,200 for the years ended August 31,
1995 and 1994. Upon the employee's death, the Company is further
obligated to pay, for a ten-year period, 50% of the commissions that
would have been paid had the employee survived. Statement of Financial
Accounting Standards No. 106, "Employers' Accounting for Postretirement
Benefits Other Than Pensions", requires that the expected cost of this
benefit be charged to expense during the years of the employee's
service so that, at the employee's death, a liability has been
established equal to the present value of all future benefits to be
paid. The amount charged to expense was $15,200 and $22,500 for the
years ended August 31, 1995 and 1994, respectively.
The Company has entered into an employment agreement with an
officer/shareholder that provides for a salary of $250,000 per annum
through July 22, 1998. The agreement also provides for an annual bonus
to be paid based on certain sales levels. The Company has accrued a
bonus of approximately $172,000 for the year ended August 31, 1995.
(d) Contingencies
The Company is a defendant in several lawsuits which have arisen in the
ordinary course of business. Management is of the opinion, after
consulting with counsel, that these actions are without merit or will
not have a material adverse effect on the Company.
During the fiscal year ended August 31, 1994, the Company settled a
legal action with a former vendor for $160,000. The Company had accrued
$150,000 with respect to this action at August 31, 1993.
NOTE 9 - RETIREMENT PLAN
The Company maintains a 401(k) plan covering all eligible employees.
Participants are allowed to contribute up to 20% of the salary to the
Plan. The Company has the option to match 50% of the employee
contribution to the extent that the contribution does not exceed 4% of
compensation. The Company's contribution amounted to $19,729 and $2,775
for the years ended August 31, 1995 and 1994, respectively.
<PAGE>
Page 9 of 10
SWIFT GLOBAL COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 10 - RELATED PARTY TRANSACTIONS
The Company was charged for accounting services totaling $87,750 for
the year ended August 31, 1994 from a partnership, one of whose
partners is a minority shareholder. The Company also leased space to
the partnership on a monthly basis. For the years ended August 31, 1995
and 1994, respectively, rent received totalled $21,200 and $20,400,
respectively.
The Company leases offices from an affiliated partnership. A total of
$43,560 and $35,970 was paid to this partnership during the years ended
August 31, 1995 and 1994, respectively.
For the years ended August 31, 1995 and 1994, respectively, the Company
paid $21,532 and $73,243 in consulting fees to an entity related to an
officer/shareholder of the Company.
For the year ended August 31, 1995, the Company earned commissions of
$57,256 from an entity related to a shareholder of the Company.
For the year ended August 31, 1995, the Company incurred a consulting
fee of $100,000 from an entity related through common ownership. The
consulting fee was unpaid at August 31, 1995, and the related liability
is included in accrued expenses payable.
The loan payable to related party consists of a noninterest-bearing
advance from an entity related through common ownership.
NOTE 11 - PRIOR PERIOD ADJUSTMENT
Effective September 1, 1993, the Company changed its method of
accounting for product development costs. Previously, product
development costs were incorrectly capitalized and amortized over a
two-year period. Such costs are now being expensed as incurred, as
required by generally accepted accounting principles. Prior period
financial statements have been restated to give effect to the
correction of an error, net of income taxes, in the amount of $58,160,
as well as to correct an error in the calculation of income taxes with
the respect to Hong Kong, in the amount of $163,300.
NOTE 12 - CONCENTRATION OF CREDIT RISK
The Company's largest customer accounted for approximately 10% of
revenues for each of the years ended August 31, 1995 and 1994. Amounts
due from this customer were $288,315 and $98,394 at August 31, 1995 and
1994, respectively.
<PAGE>
Page 10 of 10
SWIFT GLOBAL COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 13 - EXPORT SALES
Export sales to unaffiliated customers in foreign countries are as
follows:
1995 1994
---- ----
Asia $3,483,396 $4,634,966
Europe 816,388 1,086,133
South America 701,147 749,165
North America (other than
the United States) 583,458 684,272
---------- ----------
$5,584,389 $7,154,536
========== ==========
The revenue generated by the Company's foreign operations and the
identifiable assets of the Company's foreign operations are not
regarded as significant.
<PAGE>
SWIFT GLOBAL COMMUNICATIONS, INC.
AND SUBSIDIARY
REPORT ON CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED AUGUST 31, 1993 AND 1992
<PAGE>
SWIFT GLOBAL COMMUNICATIONS, INC.
AND SUBSIDIARY
REPORT ON CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED AUGUST 31, 1993 AND 1992
CONTENTS PAGE
-------- ----
Independent Auditors' Report 1
Consolidated Balance Sheet 2
Consolidated Statement of Income and Retained Earnings 3
Consolidated Statement of Cash Flows 4
Notes to Consolidated Financial Statements 5 - 14
<PAGE>
INDEPENDENT AUDITORS' REPORT
TO THE BOARD OF DIRECTORS
SWIFT GLOBAL COMMUNICATIONS, INC.
GLEN HEAD, NEW YORK
We have audited the accompanying consolidated balance sheet of SWIFT GLOBAL
COMMUNICATIONS, INC. and SUBSIDIARY as of August 31, 1993 and 1992, and the
related consolidated statements of income and retained earnings, and cash flows
for the years then ended. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of SWIFT
GLOBAL COMMUNICATIONS, INC. and SUBSIDIARY as of August 31, 1993 and 1992 and
the consolidated results of its operations and its cash flows for the years then
ended, in conformity with generally accepted accounting principles.
As discussed in Notes 1, 2 and 17 to the consolidated financial statements, the
Company changed its method of accounting for income taxes and certain deferred
charges (1992) and has restated the August 31, 1992 financial statement to
correct errors in the method of accounting for product development costs and in
the calculation of taxes with respect to Hong Kong.
/S/ MERDINGER, FRUCHTER, ROSEN & CORSO, P.C.
Certified Public Accountants
New York, New York
February 18, 1994
April 16, 1996 as to Note 1, Note 2,
Note 5, Note 7, Note 9, Note 16 and
Note 17
<PAGE>
SWIFT GLOBAL COMMUNICATIONS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
AUGUST 31,
1993 1992
---------- ----------
ASSETS
CURRENT ASSETS:
Cash $ 175,466 $ 63,427
Accounts Receivable (Net of allowance for
uncollectible accounts at August 31, 1993
and 1992 of $130,000 and $55,000 respectively) 1,743,160 2,072,756
Loans Receivable - Stockholders (Note 4) 475,268 220,576
Loans Receivable - Other 104,584 147,472
Prepaid Expenses and Other Current Assets 373,133 191,324
---------- ----------
Total Current Assets 2,871,611 2,695,555
---------- ----------
PROPERTY AND EQUIPMENT - Net (Note 3) 2,847,581 2,452,744
---------- ----------
OTHER ASSETS:
Loan Receivable 30,551 --
Deferred Charges - Net (Note 5) -- 22,335
Deferred Rent 2,955 75,094
Security Deposits 97,311 48,864
---------- ----------
Total Other Assets 130,817 146,293
---------- ----------
TOTAL ASSETS $5,850,009 $5,294,592
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts Payable $2,796,602 $2,934,359
Accrued Expenses Payable 760,668 255,611
Current Installments of Long-Term Debt (Note 6) 306,500 247,469
Obligations Under Capital Leases -
Current Portion (Note 8) 31,649 49,082
Other Current Liabilities 70,969 242,134
Income Taxes Payable 126,100 126,100
---------- ----------
Total Current Liabilities 4,092,488 3,854,755
---------- ----------
OTHER LIABILITIES:
Long-Term Debt (Note 6) 905,454 727,302
Obligations Under Capital Leases (Note 8) 68,535 73,159
Deferred Income Taxes 383,739 325,716
---------- ----------
Total Other Liabilities 1,357,728 1,126,177
---------- ----------
MINORITY INTEREST (Note 10) -- --
COMMITMENTS AND CONTINGENCIES (Note 8) -- --
STOCKHOLDERS' EQUITY:
Common Stock, No Par Value Per Share:
10,000 Shares Authorized; 10,483 Issued
and Outstanding (Note 7) 112,605 112,605
Retained Earnings, as restated (Note 2 and 17) 294,733 210,100
---------- ----------
407,338 322,705
Less: Cost of Treasury Stock - 67 Shares 7,545 9,045
---------- ----------
Total Stockholders' Equity 399,793 313,660
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $5,850,009 $5,294,592
========== ==========
The accompanying notes are an integral part of the consolidated financial
statements.
-2-
<PAGE>
SWIFT GLOBAL COMMUNICATIONS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF INCOME AND RETAINED EARNINGS
FOR THE YEARS ENDED AUGUST 31,
1993 1992
----------- -----------
SALES (Notes 13 and 14) $10,694,600 $10,088,291
COST OF GOODS SOLD 6,262,702 5,536,282
----------- -----------
GROSS PROFIT 4,431,898 4,552,009
----------- -----------
EXPENSES:
Selling 1,324,993 1,527,389
General and Administrative 2,860,380 2,519,225
Interest, Net 98,191 154,466
----------- -----------
4,283,564 4,201,080
----------- -----------
INCOME BEFORE PROVISION FOR INCOME TAX 148,334 350,929
AND MINORITY INTEREST
PROVISIONS FOR INCOME TAX (Note 9) 63,701 272,785
----------- -----------
NET INCOME BEFORE MINORITY INTEREST 84,633 78,144
MINORITY INTEREST (Note 10) -- --
----------- -----------
NET INCOME 84,633 78,144
RETAINED EARNINGS - Beginning, as restated (Note 2) 210,100 131,956
----------- -----------
RETAINED EARNINGS - Ending $ 294,733 $ 210,100
=========== ===========
The accompanying notes are an integral part of the consolidated financial
statements.
-3-
<PAGE>
SWIFT GLOBAL COMMUNICATIONS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEARS ENDED AUGUST 31,
1993 1992
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 84,633 $ 78,144
Adjustments to Reconcile Net Income to Net
Net Cash Provided by Operating Activities:
Depreciation and Amortization 505,768 609,731
Deferred Income Taxes 58,023 146,716
Deferred Rent 72,139 (119,999)
Changes in Assets and Liabilities:
Accounts Receivable 329,596 (545,047)
Prepaid Expenses and Other Current Assets (181,809) (113,194)
Other Assets (48,447) (38,400)
Accounts and Accrued Expense Payable 367,300 948,354
Income Taxes Payable -- 126,100
Other Current Liabilities (171,165) 147,725
----------- -----------
NET CASH PROVIDED BY OPERATING ACTIVITIES 1,016,038 1,240,130
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net Increase in Loans Receivable (242,355) (326,918)
Expenditures for Property and Equipment (878,270) (728,461)
Expenditures for Deferred Charges -- (131,731)
Reduction in Treasury Stock 1,500 --
----------- -----------
NET CASH USED IN INVESTING ACTIVITIES (1,119,125) (1,187,110)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash Overdraft -- (53,403)
Proceeds from long-term debt 510,000 350,000
Payments of long-term debt (272,817) (85,193)
Payments of capital lease obligations (22,057) (214,676)
----------- -----------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 215,126 (3,272)
----------- -----------
NET INCREASE IN CASH 112,039 49,748
CASH - Beginning 63,427 13,679
----------- -----------
CASH - Ending $ 175,466 $ 63,427
=========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest $ 96,051 $ 128,030
Income taxes 5,678 679
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
In 1992 the Company entered into a capital lease in the
amount of $250,000 to acquire computer equipment.
The accompanying notes are an integral part of the consolidated financial
statements.
-4-
<PAGE>
SWIFT GLOBAL COMMUNICATIONS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AUGUST 31, 1993
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation - The accompanying consolidated financial
statements include the accounts of Swift Global Communications, Inc.
(the "Company") and its 80% owned subsidiary, Swift Global
Communications (HK) Limited, (the "Subsidiary"), a Hong Kong
corporation. All significant intercompany accounts and transactions
have been eliminated.
Line of Business - The principal business activity of the Company and
its 80% owned subsidiary is to route telex and facsimile messages via
their computerized transmission network. During fiscal year 1991 the
Company broadened its operations internationally and entered into
agreements with companies in various countries. In addition, the
Company is selling communications equipment to several of the above
mentioned companies.
Property and Equipment - Property and equipment is stated at cost.
Depreciation is computed using the straight-line method based upon the
estimated useful lives of the various classes of assets. Maintenance
and repairs are charged to expense as incurred. The cost and related
depreciation reserves of property retired or sold are removed from the
applicable accounts and any gain or loss is taken into income.
Translation of Foreign Currency - The Company translates the foreign
currency financial statements of its Hong Kong subsidiary, Swift Global
Communications (HK) Limited, in accordance with the requirements of
Statement of Financial Accounting Standards No. 52, "Foreign Currency
Translation". If material, translation adjustments are accumulated and
reported in a separate component of stockholders' equity and are
excluded from the determination of net income.
Amounts related to foreign currency transactions are immaterial.
Income Taxes - In February 1992 the Financial Accounting Standards
Board issued Statement (SFAS) 109, "Accounting for Income Taxes". The
Company elected to retroactively apply the provisions of this new
standard, which requires recognition of deferred tax liabilities and
assets for the temporary differences between the financial reporting
basis and the tax basis of the company's assets and liabilities at
enacted tax rates expected to be in effect when such amounts are
realized or settled. The adoption of SFAS 109 did not have a material
effect on the financial statements.
Deferred Rent - Other long-term assets include deferred rent which
represents the excess of recognized rent expense over scheduled lease
payments which will be credited to future operations.
-5-
<PAGE>
SWIFT GLOBAL COMMUNICATIONS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AUGUST 31, 1993
NOTE 2 - ACCOUNTING CHANGES
In connection with the potential public offering of shares of equity
securities, the Company changed its method of accounting for the
amortization of certain deferred charges, exclusive of those in Note 5.
Previously, the Company capitalized such costs and amortized them over
various periods. The Company now charges these costs to operations as
incurred. The Company believes that charging the costs to operations as
incurred provides a better matching of revenues and expenses.
The effect of this change was to increase net income for the year ended
August 31, 1992 by $95,000. Retained earnings at August 31, 1991 has
been reduced by $916,703.
Retained Earnings, September 1, 1991 $ 1,048,659
Prior Period Adjustment (916,703)
-----------
Retained Earnings, September 1, 1991 as restated $ 131,956
===========
NOTE 3 - PROPERTY AND EQUIPMENT
Property and equipment at August 31, 1993 and 1992, is summarized as
follows:
1993 1992
---------- ----------
Computer Equipment $3,240,706 $2,597,467
Computer Software 1,087,577 948,338
Assets Under Capital Leases 687,489 636,289
Transportation Equipment 87,173 122,676
Furniture and Fixtures 102,113 88,515
Leasehold Improvements 293,366 230,419
---------- ----------
5,498,424 4,623,704
Less: Accumulated Depreciation and
Amortization 2,650,843 2,170,960
---------- ----------
$2,847,581 $2,452,744
========== ==========
Depreciation and amortization charged to operations for the years ended
August 31, 1993 and 1992 amounted to $483,433 and $432,403,
respectively.
NOTE 4 - LOANS RECEIVABLE STOCKHOLDER
Included in loans receivable stockholder is $441,000 due from the chief
executive officer. Pursuant to a certain loan agreement (see note 6)
this amount will be repaid to the Company no later than February 28,
1994.
- 6 -
<PAGE>
SWIFT GLOBAL COMMUNICATIONS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AUGUST 31, 1993
NOTE 5 - DEFERRED CHARGES
Deferred charges at August 31, 1993 and 1992 are summarized as follows:
1993 1992
-------- --------
Product Development Costs $ -- $210,521
Organization Costs -- 4,052
-------- --------
-- 214,573
Less: Accumulated Amortization -- 192,238
-------- --------
$ -- $ 22,335
======== ========
Amortization charged to operations for the years ended August 31, 1993
and 1992 amounted to $22,335 and $168,488, respectively.
NOTE 6 - LONG-TERM DEBT
Long-term debt consists of the following at August 31, 1993 and 1992:
1993 1992
---- ----
10% note payable, due in monthly installments
of $2,000 plus interest through August 1993,
$3,000 plus interest through August 1994,
$4,000 plus interest through August 1995,
the balance of $343,550 then becomes due -
collateralized by the equipment and accounts
of an acquired company. $427,550 $451,550
Note Payable - Lessor, due in monthly
installments of $6,944 plus interest at 12%
through October 1994, collateralized by
certain equipment. 97,232 180,560
Term loans payable - bank, due in installments
of $5,000, plus interest at 1% above the bank's
prime rate, collateralized by inventory and
accounts receivable. 51,000 130,000
Loan Payable - American Centurion Advance.
Interest currently payable at 15.9% 9,890 -
14% promissory note payable to stockholder,
paid in monthly installments of interest only,
due December 20, 1993. Note was not paid on
December 20, 1993 and the Company is negotiating
new terms. 100,000 100,000
10% promissory note and interest payable to
stockholder, principal and interest due and
payable on August 31, 1996. - 80,520
- 7 -
<PAGE>
SWIFT GLOBAL COMMUNICATIONS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AUGUST 31, 1993
NOTE 6 - LONG-TERM DEBT (cont'd)
1993 1992
---------- ----------
Promissory note - interest payable, at prime,
in quarterly installments beginning December 31,
1993. Principal due in quarterly installments
of $50,000 beginning September 30, 1994.
Certain restrictions and ratios need to be
maintained. At August 31, 1993, the Company
was in default of certain covenants - the
lender granted a waiver to the Company $ 500,000 $ --
Note Payable - Hong Kong, demand note at 24% 26,282 32,141
---------- ----------
1,211,954 974,771
Less: Current Portion 306,500 247,469
---------- ----------
$ 905,454 $ 727,302
========== ==========
Principal payments due on long-term debt outstanding at August 31, 1993
are as follows:
Fiscal Year
-----------
1994 $ 306,500
1995 261,904
1996 543,550
1997 100,000
----------
$1,211,954
==========
NOTE 7 - COMMON STOCK
(a) Stock Dividend
In July 1994, the Board of Directors approved an increase in the number
of its authorized shares from 10,000 (no par value) to 10,000,000 ($.01
par value), and declared a stock dividend of approximately 190 shares
for each share held.
(b) On August 26, 1993, 275 warrants, each to purchase one share of common
stock, were issued in connection with a loan. On February 24, 1994, an
additional 75 warrants were issued. After giving effect to the
aforementioned July 1994 stock dividend, 66,818 warrants were
outstanding at an exercise price of $1.17 per share. The warrants
expire on August 31, 2013. During 1998 and each subsequent calendar
year (but not on August 30 or 31, 2000 or on August 30 or 31 of any
subsequent year) the holder of said warrants has the right to cause the
Company to purchase the then outstanding and unexercised warrants
(subject to certain limitations as defined in the agreement) at a price
based on a formula specified in the warrants.
Additionally, the warrants are callable on August 30, 2000 and on each
subsequent August 30 subject to certain limitations, as defined in the
agreement. The price per warrant share to be paid by the Company
pursuant to the call shall equal nine times the average annual
consolidated net income of the Company and its subsidiaries, as
defined, of the two consecutive fiscal years preceding the call,
divided by 11,037.
At August 31, 1993, the Company's common stock is oversubscribed. It is
the Company's intention to issue additional shares of common stock
through its prospective public offering.
- 8 -
<PAGE>
SWIFT GLOBAL COMMUNICATIONS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AUGUST 31, 1993
NOTE 8 - COMMITMENTS AND CONTINGENCIES
a. Capital Leases - The Company leases various computer equipment and
automobiles under long-term lease agreements. Future minimum
payments, net of interest under the capital leases with initial or
remaining terms of one year or more, by year and in the aggregate,
consists of the following at August 31, 1993:
Year Ending August 31,
1994 $ 31,649
1995 30,682
1996 37,853
--------
$100,184
========
Operating Leases - The Company leases its office facilities under
noncancellable operating leases expiring in various years through
2000.
Future minimum payments required under these leases as of August 31,
1993, by year and in the aggregate, are as follows:
Year Ending August 31,
1994 $ 212,723
1995 179,566
1996 172,294
1997 145,221
1998 and thereafter 344,052
----------
$1,053,856
==========
In addition to the above minimum payments, certain of the leases
provide for escalation of rentals based upon increases in lessors'
operating expenses over a specified base.
Rent expense (net) aggregated $254,577 and $281,087 for the years ended
August 31, 1993 and 1992, respectively.
b. Employment Agreement - The Company has an employment agreement with one
of its minority shareholders (purportedly for his lifetime) whereby a
$4,000 salary will be paid to the shareholder monthly for services as
defined in the agreement. In addition, this shareholder receives
commissions on sales that he generates. Commissions earned approximated
$21,000 and $32,000 in August 1993 and 1992, respectively. Upon the
shareholders death, the Company is further obligated to pay, for a ten
year period, the commissions that would have been paid had the
shareholder survived, discounted by 50%. The agreement provides for
health and certain transportation benefits also until the shareholders
death. Finally, the Company cannot sell all or substantially all of its
assets or merge into another corporation unless the buyer or new
corporation agrees to be bound by the terms and conditions of the
agreement.
- 9 -
<PAGE>
SWIFT GLOBAL COMMUNICATIONS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AUGUST 31, 1993
NOTE 8 - COMMITMENTS AND CONTINGENCIES (cont'd)
c. Litigation - The Company is a defendant in pending litigation in the
Superior Court of New Jersey for an alleged breach of contract. The
plaintiffs have filed a multi-count complaint for $350,000 alleging
breach of contract, interference with prospective economic advantage
and claims for unjust enrichment. The Company denies all allegations
and has filed a counterclaim alleging damages in excess of $9,000,000.
The Company's counsel has represented that the likelihood of success in
this matter has yet to be determined. If this matter is tried, a
possible resolution might include verdicts in favor of each party which
might result in an off-set of claims. Management has indicated that
this matter can be settled in favor of the plaintiffs, for an amount
including legal fees, not to exceed $150,000. This amount, in fact,
represents the amount due to the plaintiff as a trade payable.
Accordingly, such amount has been accrued at August 31, 1993.
d. Unasserted Claims - The Company is subject to various claims covering
certain matters that arise in the ordinary course of business
activities. These matters are subject to uncertainties, and some of
these matters may be resolved unfavorably to the Company. The Company
has established accruals of $120,000 for matters that are probable and
reasonably estimatable.
e. Employee Stock Bonus - The Company has an agreement with one employee
whereby the employee will be awarded 1% of the Company's common stock
for every $250,000 of monthly billing that the employee generates. The
maximum percentage of common stock that can be awarded is 5%. At August
31, 1993, the employee had not generated monthly billing of $250,000.
In the fourth calendar quarter of 1993, the employee reached the
aforementioned billing level. The Company did not award the employee
any stock and is presently restructuring this agreement.
NOTE 9 - INCOME TAXES
The provision for income taxes for the years ended August 31, 1993 and
1992 consists of the following components:
1993 1992
----------- -----------
Current
Federal $ - $ 99,100
State - 27,000
----------- -----------
- 126,100
----------- -----------
Deferred
Federal 53,661 130,400
State 10,040 16,285
----------- -----------
63,701 146,685
----------- -----------
Total $ 63,701 $ 272,785
=========== ===========
- 10 -
<PAGE>
SWIFT GLOBAL COMMUNICATIONS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AUGUST 31, 1993
NOTE 9 - INCOME TAXES (cont'd)
The deferred tax liability reflects the net tax effect of temporary
differences between the carrying amount of assets and liabilities for
financial reporting purposes and amounts used for income tax purposes.
Significant components of the Company's deferred tax liabilities and
assets at August 31, 1993 and 1992 are as follows:
1993 1992
--------- ---------
Deferred Tax Liabilities:
Property and Equipment $ 383,739 $ 325,716
========= =========
Reconciliation of the statutory federal income tax rate to the
Company's effective tax rate for the years ended August 31, 1993 and
1992 is as follows:
1993 1992
---------------- ----------------
Amount % Amount %
Tax at U.S. Statutory Rate $ 50,433 34.0 $119,316 34.0
State Income Taxes, net of
Federal Income Tax Benefit 6,626 4.4 28,568 8.1
Foreign Losses for which no
tax benefit is available - - 124,901 35.6
Other 6,642 4.5 - -
-------- ----- -------- -----
$ 63,701 42.9 $272,785 77.7
======== ===== ======== =====
NOTE 10 - MINORITY INTEREST
Minority interest represents the 20% share of the common equity and
net loss of Swift Global Communications (HK) Limited owned personally
by the majority owner of the Company (15%) and an unrelated third
party (5%). At August 31, 1993 and 1992, cumulative losses applicable
to the minority interest in this subsidiary exceeded the minority
interest in the equity capital of the subsidiary by $80,748 and
$87,631, respectively. Such excess losses have been allocated
entirely to the Company. Any future earnings of the subsidiary will
be allocated entirely to the Company until the cumulative loss
disclosed above is fully absorbed. In the year August 31, 1993, 20%
of the subsidiary income, or $6,883, has been absorbed by the
Company.
NOTE 11 - RELATED PARTY TRANSACTIONS
The Company received accounting services totaling $62,134 and $55,840
in 1993 and 1992 respectively from a partnership, one of whose
partners is the Company's Treasurer and minority stockholder. As of
August 31, 1993, the accounts payable reflect a balance due of
$3,800. The Company also leases space to the partnership on a monthly
basis. At August 31, 1993, rent received totalled $20,400.
The Company leases its main offices from an affiliated partnership. A
total of $36,816 and $74,655 was paid to this partnership during the
years 1993 and 1992, respectively, and is reflected in rent expense.
- 11 -
<PAGE>
SWIFT GLOBAL COMMUNICATIONS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AUGUST 31, 1993
NOTE 12 - RETIREMENT BENEFITS
The Company maintains a 401(K) plan covering substantially all
employees who meet eligibility requirements. The Company has the
option to match 50% of the aggregate employee contribution to the
extent that the aggregate contribution does not exceed 4% of
compensation.
The 401(K) expense amounted to $2,395 and $10,423 for the years ended
August 31, 1993 and 1992.
NOTE 13 - INFORMATION REGARDING MAJOR CUSTOMERS
A significant portion of the Company's net sales has been derived
from two customers for the years ended August 31, 1993 and 1992.
These two customers accounted for approximately 10% each of the
current fiscal year's net sales. Amounts included in accounts
receivable for these customers at August 31, 1993 and 1992
approximated $63,800 and $589,800.
NOTE 14 - SALES BY PRODUCT
Sales by product for the years ended August 31, 1993 and 1992 are as
follows:
1993 % 1992 %
---- --- ---- ---
Telex $ 4,581,395 43 $ 5,989,160 59
Fax 4,564,559 42 2,855,372 28
Other 1,566,572 15 1,243,759 13
----------- --- ----------- ---
$10,712,526 100% $10,088,291 100%
=========== === =========== ===
NOTE 15 - SUBSEQUENT EVENTS
a. In January 1994, the Company received $50,000 pursuant to a
promissory note payable on November 30, 1994, with interest payable
monthly at 12% commencing January 31, 1994. The Company is also
presently negotiating with this lender for an additional $225,000
with terms including the issuance of additional stock warrants. The
Company anticipates closing this arrangement in February 1994.
b. On February 9, 1994, the Company issued an additional 200 shares of
common stock to a former employee due to an erroneous stock
allocation in prior years. The former employee has rescinded prior
claims made against the Company based upon the February 9, 1994
agreement.
- 12 -
<PAGE>
SWIFT GLOBAL COMMUNICATIONS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AUGUST 31, 1993
NOTE 16 - FOREIGN OPERATIONS
Information about the Company's Foreign Operations and the
reconciliation to the consolidated financial statements for the years
ended August 31, 1993 and 1992 is as follows:
<TABLE>
<CAPTION>
Swift Global Swift Global Adjustments
Communications Communications and
(HK) Ltd. Inc. Eliminations Consolidated
----------- ----------- ------------- -----------
<S> <C> <C> <C> <C>
Year Ended August 31, 1993
Sales to Unaffiliated
Customers $ 1,077,365 $ 9,617,235 $ -- $10,694,600
Inter-Company Sales 210,031 (210,031) --
----------- ----------- ------------- -----------
Total Revenue $ 1,077,365 $ 9,827,266 $ (210,031) $10,694,600
=========== =========== ============= ===========
Income Before Taxes and
Minority Interest $ 53,341 $ 94,993 $ -- $ 148,334
=========== =========== ============= ===========
Identifiable Assets at
August 31, 1993 $ 392,554 $ 5,598,937 $ (141,482) $ 5,850,009
=========== =========== ============= ===========
Year Ended August 31, 1992
Sales to Unaffiliated
Customers $ 534,915 $ 9,553,376 $ -- $10,088,291
Inter-Company Sales 160,683 257,190 (417,873) --
----------- ----------- ------------- -----------
Total Revenue $ 695,598 $ 9,810,566 $ (417,873) $10,088,291
=========== =========== ============= ===========
Income Before Taxes and
Minority Interest $ (196,221) $ 547,150 $ $ 350,929
=========== =========== ============= ===========
Identifiable Assets at
August 31, 1992 $ 695,339 $ 5,602,786 $ (1,003,533) $ 5,294,592
=========== =========== ============= ===========
</TABLE>
The Company's foreign operations are conducted primarily in the
Southeast Asia geographic area.
- 13 -
<PAGE>
SWIFT GLOBAL COMMUNICATIONS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AUGUST 31, 1993
NOTE 17 - RESTATEMENT OF FINANCIAL STATEMENTS
The Company has restated the August 31, 1992 financial statements to
correct errors in the method of accounting for product development
costs and in the calculation of income taxes with respect to Hong
Kong. The affect on the amounts originally reported for 1993 and 1992
is as follows:
Increase Increase
(Decrease) (Decrease)
--------- ---------
1993 1992
--------- ---------
Balance Sheet:
Deferred Charges $ (96,160) $ (96,160)
Accrued Expenses Payable 39,900 39,900
Income Taxes Payable 126,100 126,100
Deferred Income Taxes (40,700) (40,700)
Retained Earnings (221,460) (221,460)
Statement of Income:
General and Administrative - 126,060
Interest - Net - 10,700
Provision for Income Taxes - 84,700
Statement of Cash Flows:
Net Income - (221,460)
Depreciation and Amortization (84,303) 96,160
Deferred Income Taxes - (40,700)
Accounts and Accrued Expenses Payable - 39,900
Income Taxes Payable - 126,100
Expenditures for Deferred Charges 84,303 -
- 14 -
<PAGE>
ViTel International
Holding Company, Inc.
Consolidated Financial Statements
<PAGE>
ViTel International Holding Company, Inc.
Contents
Independent Auditors' Report 3
Consolidated Financial Statements
Balance sheets 4 - 5
Statements of operations 6
Statements of changes in stockholders' equity 7
Statements of cash flows 8 - 9
Summary of accounting policies 10 - 12
Notes to consolidated financial statements 13 - 24
2
<PAGE>
Independent Auditors' Report
To the Board of Directors
ViTel International Holding Company, Inc.
Mill Valley, California
We have audited the accompanying consolidated balance sheets of ViTel
International Holding Company, Inc. and Subsidiaries as of June 30, 1995 and
1994, and the related consolidated statements of operations, changes in
stockholders' equity, and cash flows for each of the three years in the period
ended June 30, 1995. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of ViTel International
Holding Company, Inc. and Subsidiaries at June 30, 1995 and 1994, and the
results of its operations and its cash flows for each of the three years in the
period ended June 30, 1995, in conformity with generally accepted accounting
principles.
/s/ BDO Seidman, LLP
November 3, 1995
3
<PAGE>
ViTel International Holding Company, Inc.
Consolidated Balance Sheets
(In Thousands)
June 30, 1995 1994
- ------------------------------------------------------------------------------
Assets
Current
Cash and cash equivalents $ 4,216 $2,454
Accounts receivable, net of allowance for
doubtful accounts of $98 and $95 (Note 4) 4,380 3,471
Income tax receivable (Note 3) 301 -
Deferred income tax assets, net (Note 3) 233 -
Other current assets 1,024 691
- ------------------------------------------------------------------------------
Total current assets 10,154 6,616
Property and equipment, net (Notes 1 and 2) 6,327 5,822
Intangible assets, net 938 1,088
Covenant not to compete, net (Note 7) 764 -
Deferred income tax assets, net (Note 3) 802 359
Other assets 861 818
- ------------------------------------------------------------------------------
$19,846 $14,703
==============================================================================
4
<PAGE>
ViTel International Holding Company, Inc.
Consolidated Balance Sheets
(In Thousands)
June 30, 1995 1994
- ------------------------------------------------------------------------------
Liabilities and Stockholders' Equity
Current
Accounts payable and accruals (Note 4) $ 5,868 $4,751
Current maturities of long-term debt and capital lease
obligations (Note 2) 1,067 878
Income taxes payable (Note 3) 221 186
Current portion of other long-term liabilities (Note 7) 489 -
- ------------------------------------------------------------------------------
Total current liabilities 7,645 5,815
Long-term debt and capital lease obligations, net of
current maturities (Note 2) 1,159 161
Deferred income tax liabilities (Note 3) 962 1,170
Other long-term liabilities (Note 7) 730 -
- ------------------------------------------------------------------------------
Total liabilities 10,496 7,146
- ------------------------------------------------------------------------------
Commitments and subsequent event (Notes 4, 5, 7 and 8)
Stockholders' equity
Common stock (Notes 4 and 7), $.01 par - shares authorized,
4,000,000; outstanding, 1,358,766 and 1,108,966 at June 30,
1995 and 1994 14 11
Additional paid-in capital (Note 4) 5,276 2,528
Retained earnings 3,390 4,731
Cumulative translation adjustment 670 287
- ------------------------------------------------------------------------------
Total stockholders' equity 9,350 7,557
- ------------------------------------------------------------------------------
$19,846 $14,703
==============================================================================
See accompanying summary of accounting policies and notes to consolidated
financial statements.
5
<PAGE>
ViTel International Holding Company, Inc.
Consolidated Statements of Operations
(In Thousands)
Year ended June 30, 1995 1994 1993
- ------------------------------------------------------------------------------
Data transmission revenues $28,935 $25,381 $25,802
Costs of data transmission 17,970 15,117 15,637
- ------------------------------------------------------------------------------
Gross profit from data transmission 10,965 10,264 10,165
Selling, general and administrative expenses (Note 4) 10,531 8,937 8,794
Stock acquisition expenses (Notes 4 and 7) 2,764 - -
- ------------------------------------------------------------------------------
Operating (loss) profit (2,330) 1,327 1,371
- ------------------------------------------------------------------------------
Other income (expense)
Interest expense (66) (110) (130)
Foreign currency gains 160 64 102
Other, net 38 238 118
- ------------------------------------------------------------------------------
132 192 90
- ------------------------------------------------------------------------------
(Loss) income before income taxes (2,198) 1,519 1,461
Income tax benefit (expense) (Note 3) 857 (562) (510)
- ------------------------------------------------------------------------------
Net (loss) income $(1,341) $ 957 $ 951
- ------------------------------------------------------------------------------
See accompanying summary of accounting policies and notes to consolidated
financial statements.
6
<PAGE>
ViTel International Holding Company, Inc.
Consolidated Statements of Changes in Stockholders' Equity
(In Thousands)
<TABLE>
<CAPTION>
Common Stock Additional Cumulative
--------------- Paid-in Retained Subscription Translation
Shares Amount Capital Earnings Receivable Adjustment Total
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, June 30, 1992 1,268 $13 $3,551 $2,823 $(439) $341 $6,289
Foreign currency translation adjustment - - - - - (162) (162)
Net income - - - 951 - - 951
- ------------------------------------------------------------------------------------------------------------
Balance, June 30, 1993 1,268 $13 $3,551 $3,774 $(439) $179 $7,078
Termination of stock subscription
(Note 4) (22) - (439) - 439 - -
Repurchase of common stock (Note 4) (137) (2) (584) - - - (586)
Foreign currency translation
adjustment - - - - - 108 108
Net income - - - 957 - - 957
- ------------------------------------------------------------------------------------------------------------
Balance, June 30, 1994 1,109 11 2,528 4,731 - 287 7,557
Stock compensation for stock
options granted (Note 4) - - 1,909 - - - 1,909
Exercise of employees' stock options
(Note 4) 250 3 839 - - - 842
Foreign currency translation
adjustment - - - - - 383 383
Net loss - - - (1,341) - - (1,341)
- ------------------------------------------------------------------------------------------------------------
Balance, June 30, 1995 1,359 $14 $5,276 $3,390 $ - $670 $9,350
- ------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying summary of accounting policies and notes to consolidated
financial statements.
7
<PAGE>
ViTel International Holding Company, Inc.
Consolidated Statements of Cash Flows
(In Thousands)
Year ended June 30, 1995 1994 1993
- ------------------------------------------------------------------------------
Cash flows from operating activities
Net (loss) income $(1,341) $ 957 $ 951
- ------------------------------------------------------------------------------
Adjustments to reconcile net (loss) income to net
cash provided by operating activities:
Depreciation and amortization 1,926 1,629 1,675
Loss on sale of capital assets, net 65 34 106
Stock acquisition expenses 2,464 - -
Increase (decrease) in cash from changes in:
Accounts receivable, net (648) (181) (351)
Other current assets (287) (85) 19
Other assets - (42) 10
Accounts payable and accruals 1,035 530 777
Income taxes payable (291) (31) (77)
Deferred income taxes (917) 21 310
- ------------------------------------------------------------------------------
Total adjustments 3,347 1,875 2,469
- ------------------------------------------------------------------------------
Net cash provided by operating activities 2,006 2,832 3,420
- ------------------------------------------------------------------------------
Cash flows from investing activities
Capital expenditures (2,131) (2,520) (1,900)
Proceeds from sale of capital assets 5 14 2
- ------------------------------------------------------------------------------
Net cash used in investing activities (2,126) (2,506) (1,898)
- ------------------------------------------------------------------------------
8
<PAGE>
ViTel International Holding Company, Inc.
Consolidated Statements of Cash Flows
(In Thousands)
Year ended June 30, 1995 1994 1993
- ------------------------------------------------------------------------------
Cash flows from financing activities
Proceeds from long-term debt $2,104 $1,273 $1,188
Principal payments on long-term debt and
capital lease obligations (1,077) (1,683) (1,236)
Repurchase of common stock (Note 4) - (586) -
Exercise of employees' stock options (Note 4) 842 - -
- ------------------------------------------------------------------------------
Net cash provided by (used in) financing activities 1,869 (996) (48)
- ------------------------------------------------------------------------------
Effect of exchange rate changes on cash 13 (30) (434)
- ------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents 1,762 (700) 1,040
Cash and cash equivalents, beginning of year 2,454 3,154 2,114
- ------------------------------------------------------------------------------
Cash and cash equivalents, end of year $4,216 $2,454 $3,154
- ------------------------------------------------------------------------------
Supplemental disclosures of cash flow information
During the year ended June 30, 1995, the Company was assigned a covenant not to
compete and the related liability valued at $900,000 (Note 7).
Cash paid for:
- ------------------------------------------------------------------------------
Interest $ 122 $ 143 $ 148
Income taxes $ 350 $ 592 $ 250
- ------------------------------------------------------------------------------
See accompanying summary of accounting policies and notes to consolidated
financial statements.
9
<PAGE>
ViTel International Holding Company, Inc.
Summary of Accounting Policies
Business
ViTel International Holding Company, Inc. (the Company) is engaged in the
business of electronic message and data transmission including electronic mail,
facsimile, and telex. The Company conducts its operations in the United States
and through a network of subsidiary companies located in countries throughout
the world including Japan, Hong Kong, Australia and the United Kingdom. In
addition, the Company maintains a research and development facility in Boulder,
Colorado (Note 8), dedicated to the development and enhancement of its
communications technology.
Principles of
Consolidation
The consolidated financial statements include the accounts of the Company and
all subsidiary companies throughout the world. All subsidiaries are 100 percent
owned. All material intercompany accounts and transactions are eliminated. The
Company employs accounting policies for consolidated reporting purposes that are
in conformity with generally accepted accounting principles in the United
States.
Cash and Cash
Equivalents
Cash equivalents are principally comprised of cash invested in certificates of
deposit and temporary money market instruments, stated at cost plus accrued
interest, with original maturities of three months or less.
Property and
Equipment
Property and equipment are stated at cost. Major additions and betterments are
capitalized; repairs and maintenance are charged to operations as incurred.
Depreciation is provided using straight-line and declining balance methods,
principally over the following useful lives:
- ----------------------------------------------------------
Buildings 25 years
Communications equipment 4-5 years
- ----------------------------------------------------------
Amortization of leasehold improvements and assets under capital lease
obligations is provided using the straight-line method over the life of the
asset or the lease term.
Intangible
Assets
Intangible assets include goodwill and purchased customer lists which are
amortized using the straight-line method over periods from ten to twenty years.
Amortization of intangible assets charged to operations in 1995 and 1994 totaled
$228,000 and $231,000.
10
<PAGE>
ViTel International Holding Company, Inc.
Summary of Accounting Policies
Covenant Not
To Compete
Covenant not to compete is amortized using the straight-line method over a
period of three years, the terms of the agreement. Amortization expense charged
to operations in 1995 totaled $136,000 (Note 7).
Foreign Currency
Translation
The Company and each of its subsidiaries use their local currency as their
functional currency. Gains and losses from foreign currency transactions are
included in the determination of net income. Cumulative translation adjustments,
which result from the process of translating the consolidated financial
statements from the functional currencies of each subsidiary into the reporting
currency, are included as a component of stockholders' equity.
Revenue
Recognition
Revenue from data transmission is recognized when the data is delivered to
customer specified destinations.
Software
Research and
Development
Costs
The Company incurred research and development costs totaling $395,000, $304,000
and $487,000 for the years ended June 30, 1995, 1994 and 1993 which are included
in general and administrative expenses.
The Company capitalizes internal software development costs in accordance with
Statement of Financial Accounting Standards No. 86. Capitalization of these
costs begins when a product's technological feasibility has been established and
ends when the product is available for general release to customers. Amounts
capitalized in the years ending June 30, 1995, 1994 and 1993 totaled $679,000,
$674,000 and $609,000. Amortization is computed over a five year estimated
economic life of the products.
Income Taxes
Income taxes are calculated using the liability method specified by
Statement of Financial Accounting Standards No. 109, "Accounting for
Income Taxes."
Financial
Instruments
The Company uses foreign exchange contracts to hedge the effects of exchange
rate changes associated with the future transfer of funds from one subsidiary to
another to settle existing liabilities. Gains and losses on contracts that
effectively hedge foreign currency transactions are deferred and included in
income as the transfer of funds occurs.
See Note 7.
11
<PAGE>
ViTel International Holding Company, Inc.
Notes to Consolidated Financial Statements
1. Property and
Equipment
Property and equipment consisted of the following (in thousands):
June 30, 1995 1994
- --------------------------------------------------------------------------------
Communications equipment $10,781 $11,706
Computer software 4,724 4,043
Equipment under capital leases 1,262 847
Land, building and leasehold improvements 833 747
- --------------------------------------------------------------------------------
17,600 17,343
Less accumulated depreciation
and amortization 11,273 11,521
- --------------------------------------------------------------------------------
$ 6,327 $ 5,822
- --------------------------------------------------------------------------------
Accumulated depreciation relating to equipment under capital leases totaled
$558,000 and $475,000 at June 30, 1995 and 1994. Accumulated amortization
relating to the computer software totaled $3,125,000 and $2,514,000 at June 30,
1995 and 1994.
Depreciation expense of $202,000, $92,000 and $64,000 on equipment under capital
leases was recorded for the years ended June 30, 1995, 1994 and 1993.
Amortization expense of $611,000, $547,000 and $609,000 on computer software was
recorded for the years ended June 30, 1995, 1994 and 1993.
12
<PAGE>
ViTel International Holding Company, Inc.
Notes to Consolidated Financial Statements
2. Long-term
Debt and
Capital Lease
Obligations
Long-term debt and capital lease obligations consisted of the following (in
thousands):
June 30, 1995 1994
- --------------------------------------------------------------------------------
Notes payable to U.K. bank, interest at
9.5%, principal and interest payable
monthly through September 1997,
secured by mortgages on real property $ 36 $ 50
Notes payable to Japanese banks, interest
at 2.8% to 3.6%, principal and
interest payable monthly through March 1998,
unsecured 1,176 339
Notes payable to the Company's former
majority stockholder, interest at 12%,
principal and interest payable monthly
through February 1996, unsecured 170 360
Obligations under capital leases, secured
by communications equipment (Note 5) 844 290
- --------------------------------------------------------------------------------
2,226 1,039
Less current portion 1,067 878
- --------------------------------------------------------------------------------
$1,159 $ 161
- --------------------------------------------------------------------------------
Interest expense on the note payable to the Company's former majority
stockholder totaled $40,000, $67,000 and $81,000 for the years ended June 30,
1995, 1994 and 1993.
At June 30, 1995, minimum principal payments required on long-term debt and
capital lease obligations are as follows (in thousands):
13
<PAGE>
ViTel International Holding Company, Inc.
Notes to Consolidated Financial Statements
Year ending June 30, Amount
- ---------------------------------------------
1996 $1,067
1997 591
1998 386
1999 118
2000 64
- ---------------------------------------------
$2,226
- ---------------------------------------------
3. Income
Taxes
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Valuation allowances are
established when necessary to reduce deferred tax assets to the amount expected
to be realized.
Income tax benefit (expense) is comprised of the following:
1995 1994 1993
- ----------------------------------------------
Current:
U.S. Federal $ 160 $(168) $ (10)
State and local -- (47) (7)
Foreign (226) (378) (189)
- ----------------------------------------------
(66) (593) (206)
- ----------------------------------------------
Deferred:
U.S. Federal 874 (24) (171)
State and local 154 (4) (30)
Foreign (105) 59 (103)
- ----------------------------------------------
923 31 (304)
- ----------------------------------------------
$ 857 $(562) $(510)
- ----------------------------------------------
14
<PAGE>
ViTel International Holding Company, Inc.
Notes to Consolidated Financial Statements
The domestic and foreign components of earnings (loss) before income taxes are
as follows:
Year ended June 30, 1995 1994 1993
- ---------------------------------------------------------------
Domestic $(2,683) $ 799 $ 359
Foreign 485 720 1,102
- ---------------------------------------------------------------
$(2,198) $ 1,519 $ 1,461
- ---------------------------------------------------------------
The difference between taxes at the U.S. Federal statutory income tax rate and
the actual current year's taxes on income is as follows (in thousands):
1995 1994 1993
- -------------------------------------------------------------------------
Tax benefits (expenses) computed
at U.S. Federal statutory rate $ 747 $(516) $(497)
Income taxes on foreign operations
(more) less than taxes at the
U.S. Federal statutory rate (61) 5 68
State tax benefits (expenses),
net of Federal income tax benefit 92 (32) (25)
Other 79 (19) (56)
- -------------------------------------------------------------------------
$ 857 $(562) $(510)
- -------------------------------------------------------------------------
15
<PAGE>
ViTel International Holding Company, Inc.
Notes to Consolidated Financial Statements
Significant components of the Company's long-term deferred income tax assets and
liabilities, primarily relating to U.S. taxes, at June 30, 1995, 1994 and 1993
are as follows (in thousands):
1995 1994 1993
- ---------------------------------------------------------------------
Depreciation $ 55 $ 46 $ 48
Compensated absences 144 82 77
State taxes -- 18 12
Bad debt reserve 27 36 28
Loss carryforward 653 85 --
Tax credits 415 105 150
Other 50 4 37
- ---------------------------------------------------------------------
Gross deferred income tax assets 1,344 376 352
Deferred income tax assets valuation
allowance (542) (17) (44)
- ---------------------------------------------------------------------
Net deferred income tax assets $ 802 $ 359 $ 308
- ---------------------------------------------------------------------
The deferred income tax asset valuation allowance was $51,000 at the beginning
of fiscal year 1993.
1995 1994 1993
- ---------------------------------------------------------------------
Depreciation $ 330 $267 $180
Intangible assets 206 267 346
Research and development costs 426 636 562
- ---------------------------------------------------------------------
Deferred income tax liabilities $ 962 $1,170 $1,088
- ---------------------------------------------------------------------
16
<PAGE>
ViTel International Holding Company, Inc.
Notes to Consolidated Financial Statements
The current deferred income tax asset at June 30, 1995 of $233,000 relates
primarily to the estimated utilization of net operating loss carryforwards
expected to offset future taxable income in the United States.
As of June 30, 1995, the income tax receivable relates to estimated taxes paid
in the current year of approximately $60,000 plus $187,000 relating to the
carryback of net operating losses in the United States plus $54,000 relating to
the carryback of net operating losses in the United Kingdom.
For tax purposes, the Company has foreign net operating loss carryforwards of
approximately $414,000 which may be carried forward to offset future taxable
income. For Federal and state income tax purposes, the Company is expected to
have available net operating loss carryforwards of approximately $1.7 million
and $1.8 million. The Federal loss carryforwards expire in 15 years and the
state loss carryforwards expire over a period of 5 to 15 years. Additionally,
the Company also has U.S. general business tax credit carryforwards of
approximately $415,000 that may be carried forward to offset regular tax
liabilities for a 15-year period from the year that credits were earned. The
credits expire from 2000 to 2010.
4. Common Stock
Transactions
In October 1994, the former majority stockholder of the Company entered into an
agreement to sell all his issued and outstanding common stock. Terms of his
agreement required the buyer to make a tender offer for all other outstanding
stock, including all outstanding options to purchase 250,000 shares of common
stock.
Included in stock acquisition expenses is $200,000 paid to an entity which is
affiliated with the new stockholder. This same affiliated entity also provided
$100,000 of administrative services to the Company for the year ended June 30,
1995. The Company also provided administrative services to another affiliated
entity for $100,000 during the year ended June 30, 1995. As of June 30, 1995,
the Company is owed, and owes, $100,000 from and to these affiliated entities
for such administrative services.
On October 25, 1991, the Company entered into an agreement with a third party to
sell 43,950 shares of its unissued common stock. As part of the agreement, the
third party was also granted the option to purchase up to 5% of the then total
outstanding common stock at a purchase price of $15 per share, exercisable
through December 31, 1993. Total consideration for the sale was $879,000, half
of which was paid on January 1, 1992, and the balance of which was due on
January 1, 1993. During fiscal 1994, the Company, the Company's principal
stockholder and the third party entered into a settlement agreement relating to
the unpaid stock subscription. The terms of the settlement resulted in the
Company canceling the stock subscription and entering into an agreement to
repurchase from the third party 136,772 shares of common stock. The 136,772
shares repurchased by the Company includes 21,975 shares previously sold by
17
<PAGE>
ViTel International Holding Company, Inc.
Notes to Consolidated Financial Statements
the Company and 114,797 shares sold by the Company's principal stockholder to
the third party in a related October 1991 transaction. The purchase price for
the 136,772 shares was $575,000. Legal fees incurred by the Company relating to
this matter totaled approximately $267,000. Of this amount, the third party
reimbursed the Company $200,000, and the Company's principal stockholder
reimbursed the Company approximately $56,000 in fiscal 1995. The settlement of
this transaction was recorded at June 30, 1994. Accordingly, paid-in capital and
stock subscription receivable were adjusted by $439,000. Additionally, common
stock and paid-in capital have been adjusted to reflect the Company's
acquisition of 136,772 shares of common stock at a cost, including expenses of
approximately $11,000, of $586,000. As of June 30, 1994, accounts payable
included $375,000 due to the third party for the repurchase of the 136,772
shares of stock and accounts receivable included $56,000 due from the Company's
former majority stockholder for his share of legal fees relating to the
transaction.
Under the Company's non-qualified stock option plan, as amended in May 1994,
250,000 common shares had been reserved for award to officers, employees, and
independent contractors retained by the Company or its subsidiaries. Shares were
awarded at the discretion of the Company's Board of Directors. Options were
granted at the estimated fair market value of the stock. Options generally
vested equally over a five-year period. Stock option transactions during fiscal
years 1995 and 1994 are summarized as follows:
Outstanding Option
Stock Price
Options per Share
- --------------------------------------------------------------------------
Outstanding, June 30, 1992 167,950
Granted 5,600 $5.75
Canceled (24,550) 2.55-5.12
- --------------------------------------------------------------------------
Outstanding, July 1, 1993 149,000 2.55-5.75
Granted 19,400 4.05
Canceled (10,700) 2.55-5.75
- --------------------------------------------------------------------------
Outstanding, June 30, 1994 157,700
Granted 104,500 4.05
Canceled (12,400) 2.55-5.75
Exercised (249,800) 2.55-5.75
- --------------------------------------------------------------------------
Outstanding, June 30, 1995 -
- --------------------------------------------------------------------------
18
<PAGE>
ViTel International Holding Company, Inc.
Notes to Consolidated Financial Statements
On September 30, 1994, after the cancellation of options to purchase 12,400
shares of common stock, the Company granted various Company employees options to
purchase 104,500 shares of common stock at $4.05 per share. As a result of the
January 1995 sale of the stockholders' stock described above, all 250,000
outstanding options became immediately 100% vested. In January 1995,
substantially all options were exercised, the related stock issued and then
immediately sold. As a result of the issuance of the stock options in 1995, and
the sale of all stock, the Company recorded compensation expense of
approximately $1.9 million relating to the stock options issued in 1995 which
were deemed to be compensatory.
5. Leases
The Company and its subsidiaries have entered into various operating lease
agreements for office facilities and communications equipment, certain of which
include renewal options.
The future minimum lease payments under capital leases and all non-cancelable
operating leases with initial or remaining terms in excess of one year are as
follows (in thousands):
19
<PAGE>
ViTel International Holding Company, Inc.
Notes to Consolidated Financial Statements
Capital Operating
Year ending June 30, Leases Leases
- ----------------------------------------------------------
1996 $ 342 $ 928
1997 277 769
1998 196 630
1999 132 448
2000 68 98
- ----------------------------------------------------------
Total minimum future lease payments 1,015 $2,873
------
Less amount representing interest,
calculated at rates ranging
from 7.2% to 11.7% 171
- ----------------------------------------------------------
Present value of net minimum lease
payments (Note 2) $ 844
- ----------------------------------------------------------
Rent expense under all non-cancelable operating leases was approximately
$1,024,000, $1,001,000 and $1,236,000 for the years ended June 30, 1995, 1994
and 1993.
20
<PAGE>
ViTel International Holding Company, Inc.
Notes to Consolidated Financial Statements
6. Geographic
Information
The Company operates exclusively in the communications industry. Summarized data
by geographic region for the Company's operations are as follows (in thousands):
Year ended June 30, 1995 1994 1993
- ----------------------------------------------------------------------
United States $ 3,905 $ 4,002 $ 4,056
Japan 11,421 10,524 9,974
United Kingdom 6,185 6,120 6,658
Southeast Asia 4,170 2,460 2,629
Australia 3,254 2,275 2,485
- ----------------------------------------------------------------------
Total revenues $ 28,935 $ 25,381 $ 25,802
- ----------------------------------------------------------------------
Year ended June 30, 1995 1994 1993
- ----------------------------------------------------------------------
United States $ (2,683) $ 799 $ 359
Japan 459 480 136
United Kingdom (58) (75) 240
Southeast Asia 160 180 633
Australia (76) 135 93
- ----------------------------------------------------------------------
(Loss) income before income taxes $ (2,198) $ 1,519 $ 1,461
- ----------------------------------------------------------------------
June 30, 1995 1994 1993
- ----------------------------------------------------------------------
United States $ 7,020 $ 5,096 $ 5,120
Japan 5,097 4,090 3,138
United Kingdom 3,617 3,588 3,665
Southeast Asia 2,267 1,116 1,185
Australia 1,845 813 744
- ----------------------------------------------------------------------
Total assets $ 19,846 $ 14,703 $ 13,852
- ----------------------------------------------------------------------
21
<PAGE>
ViTel International Holding Company, Inc.
Notes to Consolidated Financial Statements
7. Commitments
and
Contingencies
In connection with the January 1995 stock transaction (Note 4), the Company
entered into three year employment agreements with three executive officers. The
employment agreements require annual salaries totaling approximately $440,000
plus monthly health benefits and automobile allowances. During the year ended
June 30, 1995, one executive officer terminated his employment contract with the
Company. As a result of this termination, the Company recognized compensation
expense (included in stock acquisition expense) of approximately $420,000, of
which $394,000 represents the present value of future payments, which total
approximately $128,000, $163,000 and $103,000 for the years ending June 30,
1996, 1997 and 1998.
In connection with the January 1995 stock acquisition, the former majority
shareholder entered into a three year covenant not to compete with the purchaser
of the stock. The agreement requires twelve quarterly payments of $75,000. The
first payment was made in April 1995. Subsequent to January 1995, the agreement
was assigned from the purchaser to the Company.
The Company is involved in various lawsuits which management does not believe
will have a material adverse effect on future operating results.
The Company's Board of Directors has entered into preliminary discussions with a
public company in the United States regarding the sale of the Company's common
stock. As of November 1995, no definitive agreement has been finalized.
During May 1995, the Company entered into a forward exchange contract to
exchange 230 million Japanese Yen for approximately $2.8 million. Through June
30, 1995, 100 million Japanese Yen had been exchanged for U.S. Dollars resulting
in a foreign currency transaction gain of approximately $42,000. Subsequent to
June 30, 1995, the remaining 130 million Japanese Yen were exchanged for U.S.
Dollars resulting in a gain of approximately $160,000.
22
<PAGE>
ViTel International Holding Company, Inc.
Notes to Consolidated Financial Statements
8. Subsequent
Event
In May, 1995, the Company decided to consolidate its non-research operations in
Colorado with an affiliate's operations in New York, the consolidation was
completed at the end of October 1995. The Company anticipates expending
significant cash in connection with the relocation of its Colorado operations,
primarily relating to moving expenses, costs to purchase and install new
equipment, leasehold improvements and severance payments. As of June 30, 1995,
the Company accrued $182,000 of severances which were paid to approximately 15
terminated employees. Approximately $64,000 of both leasehold improvement and
computer equipment were written off in connection with the relocation.
23
<PAGE>
Comwave Communications AG
Basel
- ---------------------------------------------------------
Revised consolidated report and financial
statements in Swiss Francs
for the nine month period ended
September 30, 1995
and the year ended December 31, 1994
<PAGE>
Audit report on the consolidated accounts for the period ended
September 30, 1995 and December 31, 1994
Comwave Communications AG, CH-Basle
We have audited the consolidated report and financial statements in Swiss Francs
at and as of the 9 month period ended September 30, 1995 and at and as of the
year ended December 31, 1994 of
o Comwave Communications AG, CH-Basle
which includes the following subsidiaries at 100 %
- Comwave (UK) Limited
- US Comwave Communications Inc.
- Comwave Communications GmbH
This consolidated report and financial statements are the responsibility of
Comwave Communications AG. Our responsibility is to express an opinion on these
statements based upon our audit.
We conducted our audit in accordance with generally accepted auditing standards,
which would materialy be on the same basis as US 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 schedule. An audit also includes assessing
management, as well as evaluating the overall schedule presentation. We believe
that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated report and the financial statements refered to
above presents fairly, in all material respects, the situation of Comwave
Communications AG for the 9 month period ended September 30, 1995 and the year
ended December 31, 1994 in accordance with US generally accepted accounting
principles.
This revised report replaces our reports dated January 3, 1996, May 2, 1996 and
May 21.
Basle, May 22, 1996
Visura Treuhand-Gesellschaft
/s/ O. Heiniger /s/ i.V. L. Fornasiero
O. Heiniger i.V. L. Fornasiero
auditor in charge
Annexe:
Consolidated Financial Statements for the nine month period ended September 30,
1995 an the year ended December 31, 1994
<PAGE>
Comwave Communications AG, Basel
Consolidated report and financial statements
for the period ended 30 September 1995
- ------------------------------------------------------
Contents of annexe
Page
1 Consolidated profit and loss account
2 Consolidated balance sheet
3 Consolidated statement of deficit
4 Consolidated cash flow statement
5 Notes forming part of the financial statements
- ------------------------------------------------------
The notes on pages 5 to 13 form part of these financial statements.
<PAGE>
Page 1
Comwave Communications AG, Basel
Consolidated Statement of Profit / Loss (-) for the period ended 30 September
1995
<TABLE>
<CAPTION>
9 months year 9 months
ended ended ended
Note 9/30/95 1 9 9 4 9/30/94
-------------- --------------- ---------------
CHF CHF CHF
unaudited
<S> <C> <C> <C> <C>
Turnover 2 6,953,509 7,657,296 5,694,094
Cost of sales -2,817,903 -4,792,741 -3,377,037
-------------- --------------- ---------------
Gross operating margin 4,135,606 2,864,555 2,317,057
-------------- --------------- ---------------
Administrative expenses 3 -3,288,335 -4,203,922 -3,047,435
Other operating income 1,818 30,055 69,243
-------------- --------------- ---------------
-3,286,517 -4,173,867 -2,978,192
-------------- --------------- ---------------
Operating income / loss (-) 4 849,089 -1,309,312 -661,135
Other income / expense (-)
Bank interest receivable 22,677 26,098 19,936
Overdraft and loan interest -52,246 -87,947 -50,622
Other expense -50,462 0 0
-------------- --------------- ---------------
-80,031 -61,849 -30,686
-------------- --------------- ---------------
Income / loss (-) before income taxes 769,058 -1,371,161 -691,821
Income tax recovery / provision (-) 5 0 -1,018 0
-------------- --------------- ---------------
Net income / loss (-) 769,058 -1,372,179 -691,821
============== =============== ===============
</TABLE>
The notes on pages 5 to 13 form part of these financial statements.
<PAGE>
Page 2
Comwave Communications AG, Basel
Consolidated Balance Sheet at 30 September 1995
<TABLE>
<CAPTION>
Note 1 9 9 5 1 9 9 4
-------------- -------------
CHF CHF
<S> <C> <C> <C>
Current Assets
Cash 2,168,833 1,844,352
Trade accounts receivable 1,553,048 1,382,685
Accounts receivable, other 70,867 149,091
Recoverable taxes 144,780 48,858
Prepayments and accrued revenues 196,175 205,424
-------------- -------------
Total current assets 4,133,703 3,630,410
Furniture, Machinery and Equipment 6 582,744 570,519
Investment in subsidiary 7 59,750 0
Goodwill 8 1,151,849 1,388,000
-------------- -------------
Total Assets 5,928,046 5,588,929
============== =============
Liabilities and Shareholders' Equity
Current liabilities
Accounts payable 1,057,284 1,956,744
Other creditors 545,069 7,438
Tax liability 193 219
Creditors for indirect taxation 37,604 28,419
Obligations under capital leases 0 3,120
-------------- -------------
1,640,150 1,995,940
-------------- -------------
Long term debt 9 1,111,872 1,470,305
-------------- -------------
Share capital and deficit
Share capital 10 3,800,000 3,500,000
Deficit -623,976 -1,377,316
-------------- -------------
11 3,176,024 2,122,684
-------------- -------------
Total Liabilities and Shareholders' Equity 5,928,046 5,588,929
============== =============
</TABLE>
The notes on pages 5 to 13 form part of these financial statements.
<PAGE>
Page 3
Comwave Communications AG, Basel
Consolidated Statement of Deficit for the period ended 30 September 1995
<TABLE>
<CAPTION>
9 months year 9 months
ended ended ended
9/30/95 1 9 9 4 9/30/94
-------------- -------------- -----------------
CHF CHF CHF
unaudited
<S> <C> <C> <C>
Balance, beginning of period 1,377,316 33,246 33,246
Net profit (-) / loss for the period -769,058 1,372,179 691,821
Prior year losses assumed by shareholders 0 -29,695 0
Cumulative translation adjustment account 15,718 1,586 824
-------------- -------------- -----------------
Balance, end of period 623,976 1,377,316 725,891
============== ============== =================
</TABLE>
The notes on pages 5 to 13 form part of these financial statements.
<PAGE>
Page 4
Comwave Communications AG, Basel
Consolidated Cash Flow Statement for the period ended 30 September 1995
<TABLE>
<CAPTION>
Note 9/30/95 12/31/94 9/30/94
-------------------- ---------------------------- ------------------------------
CHF CHF CHF CHF CHF CHF
unaudited
<S> <C> <C> <C> <C> <C> <C> <C>
Net cash outflow (-) / inflow from
operating activities 12 719,263 -1,383,233 -947,960
Interest paid -51,331 -86,905 -50,622
Finance charges paid -915 -1,042 0
Interest received 22,677 26,098 19,936
Tax paid 0 -799 0
---------- -------------- -----------------
Net cash flow from operating
activities 689,694 -1,445,881 -978,646
Investing activities
Payments to acquire intangible
fixed assets 8 0 -1,600,000 -1,600,000
Purchase of subsidiary undertakings
(net of cash and cash equivalents) 7 -59,750 277,270
Payments to acquire fixed assets -222,063 -651,133 -545,110
---------- -------------- -------------
Net cash outflow (-) / inflow from
investing activities -281,813 -1,973,863 -2,145,110
Financing
Issue of shares 300,000 1,500,000
Proceeds from loan from shareholders 1,470,305 1,482,614
Repayments of loan to shareholders -358,433 9,184
Capital element of capital lease
payments -3,120 -20,049
Cost of capital increase -21,849 -46,500
---------- -------------- -------------
Net cash inflow from financing 14 -83,402 2,903,756 1,491,798
---------- -------------- -----------------
Decrease (-) / increase in cash
and cash equivalents 13 324,479 -515,988 -1,631,958
========== ============== =================
</TABLE>
The notes on pages 5 to 13 form part of these financial statements.
<PAGE>
Page 5
Comwave Communications AG, Basel
Notes forming part of the consolidated financial statements
for the period ended 30 September 1995
- --------------------------------------------------------------------------------
1 Accounting policies
There have been no changes in accounting policies during the period.
The financial statements have been prepared under the historical cost
convention and are in accordance with applicable accounting standards.
The following principal accounting policies have been applied:
Turnover
Turnover represents sales to external customers at invoiced amounts less
value added tax or local sales taxes.
Depreciation
Depreciation is provided to write off the cost of all fixed assets over
their expected useful lives. It is calculated at the following rates:
Furniture 20 - 33 1/3% straight line
Machinery and equipment 20 - 33 1/3% straight line
Basis of consolidation
The consolidated accounts include the accounts of Comwave Communications
AG and subsidiary undertakings. The acquisition method is used to
consolidate the results of subsidiaries undertakings.
Goodwill
Purchased goodwill is capitalised and amortised over its expected useful
economic life of 5 years. The company assesses the recoverability of
goodwill by determining whether the carrying value of these assets can be
recovered through undiscounted forecasted future cash flows over their
remaining lives.
Cost of capital increase
Cost of capital increases represents the taxes paid on increasing the
share capital of the company. This is capitalised and amortised over 5
years in accordance with Swiss statute.
Exchange translation
Accounts of overseas subsidiary undertakings in foreign currencies are
translated into Swiss francs at the rates ruling at balance sheet date.
Exchange differences on translations of opening net assets are dealt with
through reserves. Foreign currency transactions of individual companies
are translated at the rates ruling when they occured and monetary assets
and liabilities at the rates ruling at the balance sheet date. Any
differences are taken to the profit and loss account.
<PAGE>
Page 6
Comwave Communications AG, Basel
Notes forming part of the consolidated financial statements
for the period ended 30 September 1995
- --------------------------------------------------------------------------------
Cash equivalents
Cash equivalents comprise short-term, highly liquid investments which are
readily convertible into known amounts of cash without notice and which
were within three months of maturity when acquired.
Leased assets
Where assets are financed by leasing agreements that give rights
approximating to ownership (capital leases), the assets are treated as if
they had been purchased outright. The amount capitalised is the present
value of the minimum lease payments payable during the lease term. The
corresponding leasing commitments are shown as amounts payable to the
lessor. Depreciation on the relevant assets is charged to the profit and
loss account.
Lease payments are split between capital and interest using the actuarial
method. The interest is charged to the profit and loss account. The
capital part reduces the amounts payable to the lessor.
All other leases are treated as operating leases. Their annual rentals
are charged to the profit and loss account on a straight-line basis over
the lease term.
Deferred taxation
Provision is made for timing differences between the treatment of certain
items for taxation and accounting purposes.
Comwave Group
The following were the subsidiary undertakings at the end of the year and
have all been included in the consolidated financial statements
<TABLE>
<CAPTION>
proportion of
country of share capital nature of
Company incorporation held business
<S> <C> <C> <C>
Comwave (UK) Limited England 100% facsimile broadcasting
US Comwave Communications Inc. U.S.A. 100% facsimile broadcasting
Comwave GmbH Germany 100% facsimile broadcasting
Not consolidated:
Comwave Communications Sarl France 100% facsimile broadcasting
</TABLE>
reason: - the company was purchased in 1995
- the company has no activity
- it is planned to liquidate this company in 1996
<PAGE>
Page 7
Comwave Communications AG, Basel
Notes forming part of the consolidated financial statements
for the period ended 30 September 1995
- --------------------------------------------------------------------------------
2 Turnover and results
Turnover
<TABLE>
<CAPTION>
9 months year 9 months
Analysis by class of business ended ended ended
9/30/95 12/31/94 9/30/94
CHF CHF CHF
unaudited
<S> <C> <C> <C>
Facsimile broadcasting 6,953,509 7,345,666 5,382,464
Computer communications equipment 0 311,630 311,630
-------------------------------------------
6,953,509 7,657,296 5,694,094
-------------------------------------------
</TABLE>
The group discontinued the supply of computer communications equipment in
June 1994.
<TABLE>
<CAPTION>
Turnover is analysed by market below: 9/30/95 12/31/94 9/30/94
CHF CHF CHF
unaudited
<S> <C> <C> <C>
Europe 5,665,634 5,991,737 4498334
America 1,144,798 1,456,312 1024937
Asia 143077 209247 170823
-------------------------------------------
6,953,509 7,657,296 5,694,094
-------------------------------------------
</TABLE>
Export sales were not significant.
<TABLE>
<CAPTION>
Income before taxes
9 months year 9 months
Analysis by class of business ended ended ended
9/30/95 12/31/94 9/30/94
CHF CHF CHF
unaudited
<S> <C> <C> <C>
Facsimile broadcasting 769,058 -1,443,250 -763,910
Computer communications equipment 0 72,089 72,089
-------------------------------------------
769,058 -1,371,161 -691,821
-------------------------------------------
Income before taxes is analysed by
market below
Europe 981,386 -1,318,641 -609,513
America -254,793 -92,609 -102,395
Singapore 42,465 40,089 20,087
-------------------------------------------
Total 769,058 -1,371,161 -691,821
-------------------------------------------
</TABLE>
<PAGE>
Page 8
Comwave Communications AG, Basel
Notes forming part of the consolidated financial statements
for the period ended 30 September 1995
- --------------------------------------------------------------------------------
Identifiable assets
9 months year
ended ended
9/30/95 12/31/94
CHF CHF
Europe 5,569,129 5,165,266
America 288,541 370,695
Asia 70,376 52,968
-----------------------------
5,928,046 5,588,929
<TABLE><CAPTION>
3 Staff costs 9/30/95 12/31/94 9/30/94
CHF CHF CHF
These consist of: unaudited
<S> <C> <C> <C>
Wages and salaries 1,277,596 1,718,574 1,380,664
Social security costs and pension costs 131,684 264,354 212,346
-------------------------------------------
1,409,280 1,982,928 1,593,010
-------------------------------------------
The number of employees by end of period was 22 (1994: 24).
Directors emoluments
Fees to directors 0 10,000 7,500
Salaries to directors 90,000 176,000 132,000
-------------------------------------------
90,000 186,000 139,500
-------------------------------------------
Emoluments (excluding pension contributions) of:
President and highest paid director 90,000 176,000 132,000
Other directors emoluments fell within the ranges:
CHF 0 - CHF 5.000 4 6 6
</TABLE>
<PAGE>
Page 9
Comwave Communications AG, Basel
Notes forming part of the consolidated financial statements
for the period ended 30 September 1995
- --------------------------------------------------------------------------------
<TABLE><CAPTION>
Administrative expenses 9/30/95 12/31/94 9/30/94
CHF CHF CHF
unaudited
<S> <C> <C> <C>
Staff costs 1,409,280 1,982,928 1,593,010
Rent and leasing 95,533 166,542 66,650
Repair and maintenance 13,434 23,505 15,936
Insurances 23,618 10,886 15,351
Energy 10,861 24,817 19,608
Depreciation of fixed assets 175,475 197,069 117,392
Amortisation of goodwill / intangible assets 258,000 347,000 258,000
Advertising and promotion 50,200 58,072 89,399
Other operating expense 400,490 555,662 408,164
General and administration 657,384 764,232 374,303
Foreign exchange loss 194,060 73,209 89,622
-------------- --------------- ----------------
3,288,335 4,203,922 3,047,435
-------------- --------------- ----------------
</TABLE>
<TABLE><CAPTION>
4 Operating income 9/30/95 12/31/94 9/30/94
CHF CHF CHF
This is arrived at after charging: unaudited
<S> <C> <C> <C>
Depreciation of fixed assets
owned assets 166,952 184,127 107,685
assets held on capital leases 8,523 12,942 9,707
Amortisation of goodwill / intangible ass. 258,000 347,000 258,000
Auditors remuneration 86,210 71,645 53,735
Exchange differences 194,060 73,209 89,622
Operating lease rentals 95,533 4,001 3,001
</TABLE>
5 Taxation
<TABLE><CAPTION>
9/30/95 12/31/94 9/30/94
CHF % CHF % CHF
unaudited
<S> <C> <C> <C> <C> <C>
Tax at satutory rate 261,450 34 -466,451 -34 -235,219
Reduction (increase) in valuation allowance -261,450 -34 465,433 34 235,219
-------------------------------------------------------
0 0 -1,018 0 0
=======================================================
</TABLE>
There are no differences between the bases used for income tax purposes
and financial reporting purposes.
The following are the components of deferred taxes:
<TABLE><CAPTION>
9/30/95 12/31/94 9/30/94
CHF % CHF % CHF
unaudited
<S> <C> <C> <C>
Net operating loss carryforwards 227,250 488,700 257,468
Less: Valuation allowance -227,250 -488,700 -257,468
-------------- --------------- ----------------
0 0 0
============== =============== ================
</TABLE>
<PAGE>
Page 10
Comwave Communications AG, Basel
Notes forming part of the consolidated financial statements
for the period ended 30 September 1995
- --------------------------------------------------------------------------------
5 Taxation (continuation)
The company has operating losses carried forward at 30th September 1995
which expire as follows:
CHF Year
Comwave (UK) Ltd 1,037,747 1997
6 Furniture, Machinery and Equipment Mach. and
Furniture equipment Total
CHF CHF CHF
Cost
At beginning of period 113,762 738,991 852,753
Additions 32,684 189,379 222,063
Exchange differences -5,543 -57,379 -62,922
----------------------------------------
At end of period 140,903 870,991 1,011,894
----------------------------------------
Depreciation
At beginning of period 47,547 234,687 282,234
Provision for the period 16,439 159,036 175,475
Exchange differences -3,891 -24,668 -28,559
----------------------------------------
At end of period 60,095 369,055 429,150
----------------------------------------
Net book value
At 30 September 1995 80,808 501,936 582,744
========================================
At 31 December 1994 66,215 504,304 570,519
========================================
The net book value of tangible fixed assets includes an amount of CHF 6.938
(1994: CHF 17.592) in respect of assets held under capital leases.
7 Investment on Subsidiary
In 1995 the Company purchased the business of Comwave communications Sarl
(France) for CHF 59'750 ( a newly formed company). This amount has been
recorded as investment in subsidiary in the Balance Sheet.
Comwave Communications Sarl (France) is not included in the financial
statements because it has no activity and it is planned to liquidate this
company in 1996.
During December 1993, the company acquired the share capital of Comwave (UK)
Limited and Comwave GmbH from Comwave AG at net liability value. This
resulted in an amount (net of cash an cash equivalents) received of CHF
277'270, which was deferred until 1994.
<PAGE>
Page 11
Comwave Communications AG, Basel
Notes forming part of the consolidated financial statements
for the period ended 30 September 1995
- --------------------------------------------------------------------------------
8 Goodwill Cost of
capital Goodwill on
increase acquisition Total
Cost
At beginning of period 135000 1,600,000 1,735,000
Additions 21849 0 21,849
-----------------------------------------
At end of period 156,849 1,600,000 1,756,849
-----------------------------------------
Depreciation
At beginning of period 27,000 320,000 347,000
Provided for the year 18,000 240,000 258,000
-----------------------------------------
At end of period 45,000 560,000 605,000
-----------------------------------------
Net book value
At 30 September 1995 111,849 1,040,000 1,151,849
=========================================
At 31 December 1994 108,000 1,280,000 1,388,000
=========================================
In January 1994, the company purchased the goodwill of Comwave AG for CHF
1'600'000.-.
Since no tangible assets or identifiable assets were aquired, goodwill was
recorded in the amount of the Purchase price. The results of the acquired
entity are included with that of Comwave since the date of acquisition.
Cost of capital increase relates to fees incured in connection with the
issuance of additional share capital.
<PAGE>
Page 12
Comwave Communications AG, Basel
Notes forming part of the consolidated financial statements
for the period ended 30 September 1995
- --------------------------------------------------------------------------------
1995 1994
CHF CHF
9 Long term debt
Other loan = loan from shareholders 1,111,872 1,470,305
------------- -------------
1,111,872 1,470,305
------------- -------------
Other loan of CHF 1.111.872 is unsecured and repayable between two and
five years. Interest is charged at 5.5 % per annum on the loan.
The loan was repaid in October 1995.
10 Share capital
Allotted, called up and fully paid.
Shares issued at September 30, 1995 and
December 31, 1994 were 3'800 and 3'500
respectively. 3,800,000 3,500,000
------------- -------------
11 Reconciliation of movements in share capital and deficit
Profit / Loss (-) for the period 769,058 -1,372,179
Exchange differences -15,718 -1,586
Issue of shares 300,000 1,500,000
Prior year losses taken by
shareholders 0 29,695
------------- ------------
Net addition to shareholders' funds 1,053,340 155,930
Opening shareholders' funds 2,122,684 1,966,754
------------- ------------
3,176,024 2,122,684
------------- ------------
<PAGE>
Page 13
Comwave Communications AG, Basel
Notes forming part of the consolidated financial statements
for the period ended 30 September 1995
- --------------------------------------------------------------------------------
12 Reconciliation of operating profit to net cash flow from operating activities
<TABLE>
<CAPTION>
9/30/95 12/31/94 9/30/94
CHF CHF CHF
unaudited
<S> <C> <C> <C>
Operating profit / loss (-) 849,089 -1,309,312 -661,136
Depreciation 175,475 197,069 117,392
Exchange differences -31,844 28,109 -824
Amortisation of intangible assets 258,000 347,000 258,000
Decrease / Increase in stocks (-) 0 62,524 55,778
Decrease / Increase in trade receivables (-) -170,362 -727,027 -736,021
Decrease / Increase in recoverable taxes (-) -95,922 13,666 0
Decrease / Increase in accrued revenues (-) 31,796 -184,467 20,957
Decrease / Increase in deposits paid/others (-) 55,675 41,210 324,670
Decrease (-) / Increase trade accounts payable -502,693 319,948 -265,839
Decrease (-) / Increase tax liabilities 9,159 58,569 -87,207
Decrease (-) / Increase accrued expenses 4,667 -230,522 26,270
Decrease (-) / Increase other payables operating 136,223 0
-------------- -----------------------------
Net cash outflow (-) / inflow from operating activities 719,263 -1,383,233 -947,960
-------------- -----------------------------
</TABLE>
13 Analysis of changes in cash equivalents during the year
<TABLE>
<CAPTION>
Cash at bank
9/30/95 12/31/94 9/30/94
CHF CHF CHF
unaudited
<S> <C> <C> <C>
Balance at begining of period 1,844,352 2,360,340 2,360,340
Net cash outflow (-) / inflow 324,481 -515,988 -1,631,957
-------------- -----------------------------
Balance at end of period 2,168,833 1,844,352 728,383
-------------- -----------------------------
</TABLE>
<PAGE>
Page 14
14 Analysis of changes in financing during the year
<TABLE>
<CAPTION>
share capital and Loans and finance
cost of capital increase lease obligations
9/30/95 12/31/94 9/30/94 9/30/95 12/31/94 9/30/94
CHF CHF CHF CHF CHF CHF
unaudited unaudited
<S> <C> <C> <C> <C> <C> <C>
Balance at beginning of
period 3,392,000 1,911,500 1,911,500 1,473,425 23,169 23,169
Cash inflow from financing 282,000 1,453,500 0 0 1,450,256 1,491,798
Cash outflow from financing 0 0 0 -361,553 0 0
Amortisation of cost of
capital increase 18,000 27,000 18,000 0 0 0
---------------------------------------- -----------------------------------------
Balance at end of period 3,692,000 3,392,000 1,929,500 1,111,872 1,473,425 1,514,967
---------------------------------------- -----------------------------------------
</TABLE>
<PAGE>
EXHIBIT INDEX
Sequentially
Exhibit No. Description Numbered Page
2.1 Agreement and Plan of Merger, dated as of November 20, --
1995, among the Registrant, SGC Acquisition Corp., a
Delaware corporation, and Swift Global Communications
Inc., a Delaware corporation.*
2.2 Stock Purchase Agreement, dated as of November 20, --
1995, among the Registrant, ViTel International
Holding Company, Inc., a Delaware corporation
("ViTel"), and the stockholders of ViTel identified
therein.*
2.3 Stock Purchase Agreement, dated as of November 20, --
1995, among the Registrant, Comwave Communications
AG, a Swiss corporation ("Comwave"), and Computainer
Systems (Global) Inc., a British Virgin Islands
corporation which was the sole shareholder of Comwave.*
3.2 Amended and Restated Certificate of Incorporation of --
the Registrant.**
3.3 Amended and Restated By-laws of the Registrant.** --
4.1 Specimen Certificate for Common Stock of the --
Registrant.**
4.2 Shareholders Agreement, dated as of November 20, 1995, --
among the Registrant, David Epstein, Stuart Epstein,
Robert Epstein, APA Excelsior III, L.P., a Delaware
limited partnership, Coutts & Co. (Jersey), Custodian
for APA Excelsior III/Offshore, L.P., a Channel Islands
corporation, CIN Venture Nominees, Ltd., a United
Kingdom corporation, APA/Fostin Pennsylvania Venture
Capital Fund, L.P., a New York limited partnership,
11313 Yukon Ltd., a Yukon corporation, George Abi Zeid,
Fortune Partner Investments Ltd., a British Virgin
Islands corporation, Gold Chalet Overseas Ltd., a
British Virgin Islands corporation, Barclay Holdings
Corporation, a British Virgin Islands corporation, Zeev
Remez, Ian Wilder, Paul Leslie Hammond, Roy B.
Andersen, Jr., Stuart S. Levy, Max A. Slifer and Dennis
Schmaltz.*
- ----------
* Previously filed.
** Incorporated by reference to the Registrant's Registration Statement on
Form S-1, Registration No. 33- 73258, originally filed with the Securities
and Exchange Commission on December 22, 1993, and declared effective on
February 11, 1994.
