U. S. SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
----------------------------------------
FORM 8-K/A
Current Report Pursuant to Section 13 or 15(d) of
The Securities Act of 1934
----------------------------------------
Date of Report (Date of earliest event reported) . . . . . . . . June 20, 1997
WORLDPORT COMMUNICATIONS, INC.
------------------------------
(Exact name of small business registrant as specified in its charter)
Delaware 33-32341-D 84-1127336
---------------- ------------------------ ----------------------
(State or other (Commission File Number) (I. R. S. Employer
jurisdiction Identification Number)
of incorporation)
9601 Katy Freeway, Suite 200
Houston, Texas 77024
-------------------------------
(Address, including zip code of
principal executive offices)
(713) 461-4999
---------------------
(Registrant's telephone number)
<PAGE>
Item 2. Acquisition or Disposition of Assets
------------------------------------
TNC Acquisition
- ---------------
On June 20, 1997, the Company acquired substantially all of the
telecommunications assets and operations of Telenational Communications Limited
Partnership ("TNC") pursuant to that certain Asset Purchase Agreement dated
April 23, 1997 (as amended by Amendment No. 1 to the Asset Purchase Agreement
dated June 20, 1997).
The assets and operations of TNC were purchased in exchange for (i) 3,750,000
shares of the Company's Common Stock (of which 1,000,000 shares are being held
pursuant to an escrow agreement for a period of 18 months subject to certain
purchase price adjustments described below) and (ii) the assumption by the
Company of certain indebtedness of TNC up to a maximum of $4.6 million,
inclusive amounts advanced to TNC by the Company prior to the closing of the
acquisition. The purchased assets include telecommunications switches and other
network equipment, customer and vendor contracts, an FCC section 214 common
carrier license, an operator services center and other assets sufficient to
continue the ongoing business of TNC. The FCC section 214 common carrier license
gives the Company the authority to resell both international switched and
private line services of authorized carriers. The final purchase price is
subject to adjustment if (i) liabilities in excess of $4.6 million are assumed,
(ii) the Company is required to invoke certain indemnifications by TNC, (iii)
there are certain expense overruns, or (iv) there are certain rejected
contracts. In addition, certain creditors of TNC have the option to convert all
or a portion of their debt into shares of the Company's Common Stock.
The acquired telecommunications switches and operator services platform in
Omaha, Nebraska provide enhanced services, such as global calling cards and
international prepaid debit cards to individuals, small businesses and large
corporate customers primarily in the United States, Western Europe and Latin
America. Through the acquired operator services center, the Company provides
multilingual customer support. The U.S. switching and operator services center
enables customers in foreign countries to take advantage of lower cost routing
and higher transmission quality for international calls. The Company's services
are currently marketed through various distribution channels in the United
States, Western Europe and Latin America.
WWC Acquisition
- ---------------
On July 3, 1997, the Company, through a wholly-owned subsidiary, merged The
Wallace Wade Company ("WWC") into the Company pursuant to that certain Agreement
and Plan of Merger dated April 20, 1997. WWC was a telecommunications marketing
consulting firm which produced and implemented marketing strategies for clients
ranging from small companies to large corporate clients. Mr. John Dalton, the
Company's President and Chief Executive Officer, was the sole shareholder of
WWC.
In connection with the WWC acquisition, the Company delivered to Mr. Dalton (i)
1,400,000 shares of the Company's Common Stock, of which 500,000 shares are
being held pursuant to an escrow agreement pending delivery to the Company of
audited Financial Statements of WWC and 900,000 shares are being held pursuant
to the escrow agreement subject to certain adjustments to the purchase price
based on the Company entering into business agreements that WWC was negotiating,
(ii) $75,000 cash, of which $37,500 was advanced to Mr. Dalton on June 6, 1997
with the remaining $37,500 being deferred at Mr. Dalton's election until
September 15, 1997; and (iii) a Promissory Note in the amount of $175,000
payable as follows: one payment of $50,000 payable on October 1, 1997, and two
payments of $62,500 payable on February 1, 1998 and July 1, 1998.
1
<PAGE>
In conjunction with the closing of the WWC transaction, Mr. Dalton agreed to
join the Board of Directors of the Company. On August 7, 1997, Mr. Dalton was
appointed to the Board of Directors of the Company.
Item 7. Financial Statements and Exhibits
---------------------------------
(a) Financial Statements of Business Acquired
- Telenational Communications Limited Partnership Financial Statements
- The Wallace Wade Company Financial Statements
(b) Pro Forma Financial Statements (unaudited)
- Pro forma combined balance sheets as of June 30, 1997.
- Pro forma combined statements of operations for the year ended
December 31, 1996
- Pro forma combined statements of operations for the six months ended
June 30, 1997
(c) Exhibits
Exhibit No. Description
----------- -----------
2.1 Asset Purchase Agreement by and between the Company
and Telenational Communications Limited Partnership
dated April 23, 1997, previously filed with Form
10-QSB for the fiscal quarter ended March 31, 1997,
and incorporated herein by reference.
2.2 Amendment No. 1 to the Asset Purchase Agreement by
and between the Company and Telenational
Communications Limited Partnership, dated June 20,
1997, previously filed with Form 8-K dated July 7,
1997, and incorporated herein by reference.
2.3 Agreement and Plan of Merger by and among the
Company, WorldPort Acquisitions, Inc., The Wallace
Wade Company, and John W. Dalton, dated April 20,
1997, previously filed with Form 8-K dated July 7,
1997, and incorporated herein by reference.
3.1 Certificate of Incorporation for the Company
previously filed with Form 10-QSB for the fiscal
quarter ended September 30, 1996, and incorporated
herein by reference.
3.2 Bylaws of the Company previously filed with Form
10-QSB for the fiscal quarter ended September 30,
1996, and incorporated herein by reference.
2
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Date: September 5, 1997 WORLDPORT COMMUNICATIONS, INC.
------------------------------
By: /s/W. Dean Spies
----------------------------------
W. Dean Spies
Chief Financial Officer and Treasurer
3
<PAGE>
INDEX TO FINANCIAL STATEMENTS
Page
----
WORLDPORT COMMUNICATIONS, INC. PRO FORMA COMBINED
Introduction to Unaudited Pro Forma Combined Financial
Statements . . . . . . . . . . . . . . . . . . . . . . . . . F-2
Pro Forma Combined Balance Sheets (unaudited) . . . . . . . . F-3
Pro Forma Combined Statements of Operations (unaudited) . . . F-4
Notes to Pro Forma Combined Financial Statements (unaudited) . F-6
TELENATIONAL COMMUNICATIONS LIMITED PARTNERSHIP
Report of Independent Public Accountants . . . . . . . . . F-8
Balance Sheets . . . . . . . . . . . . . . . . . . . . . . . F-9
Statements of Operations . . . . . . . . . . . . . . . . . F-10
Statements of Partners' Deficit . . . . . . . . . . . . . . F-11
Statements of Cash Flows . . . . . . . . . . . . . . . . . . F-12
Notes to Financial Statements . . . . . . . . . . . . . . . F-14
THE WALLACE WADE COMPANY
Report of Independent Public Accountants . . . . . . . . . F-20
Balance Sheets . . . . . . . . . . . . . . . . . . . . . . . F-21
Combined Statements of Income and Retained Earnings . . . . F-22
Statements of Cash Flows . . . . . . . . . . . . . . . . . . F-23
Notes to Financial Statements . . . . . . . . . . . . . . . F-24
F-1
<PAGE>
WORLDPORT COMMUNICATIONS, INC.
INTRODUCTION TO UNAUDITED PRO FORMA COMBINED
FINANCIAL STATEMENTS
The following unaudited pro forma combined financial statements of WorldPort
Communications, Inc. ("WorldPort" or the "Company") give effect to the
acquisition of certain assets of Telenational Communications Limited Partnership
("TNC") and the merger of The Wallace Wade Company ("WWC") into a wholly-owned
subsidiary of the Company, both of which were accounted for as purchases. The
results of operations of TNC are included in the financial statements of the
Company from the date of acquisition, June 20, 1997.
The unaudited Pro Forma Combined Balance Sheets give effect to the WWC
acquisition as if it had occurred on June 30, 1997. The unaudited Pro Forma
Combined Statements of Operations give effect to the acquisitions of TNC and WWC
as if they had occurred on January 1, 1996.
The unaudited pro forma combined financial statements give effect to (i) the
acquisitions of TNC and WWC and related goodwill, (ii) anticipated cost
reductions to be realized from the elimination of management fees payable to
TNC's general partner, and (iii) the elimination of nonrecurring acquisition
costs incurred and expensed by TNC. Neither the expected benefits or cost
reductions anticipated by the Company nor the future corporate overhead costs of
the Company have been included in the pro forma financial information of the
Company as such benefits and costs cannot be estimated at this time.
The pro forma adjustments are based on estimates, available information and
certain assumptions and may be revised as additional information becomes
available. The pro forma financial data does not purport to represent what the
Company's financial position or results of operations would have been if such
transactions had in fact occurred on those dates and are not necessarily
representative of the Company's financial position or results of operations for
any future period. The unaudited pro forma combined financial statements should
be read in conjunction with the Company's Form 10-KSB for the year ended
December 31, 1996 and Form 10-QSB for the quarter ended June 30, 1997, and the
financial statements and notes thereto of TNC and WWC included elsewhere in this
Form-8K/A. See "Risk Factors" included in the notes to the condensed
consolidated financial statements included in the Company's Form 10-QSB for the
quarter ended June 30, 1997.
F-2
<PAGE>
WORLDPORT COMMUNICATIONS, INC.
PRO FORMA COMBINED BALANCE SHEETS
(Unaudited)
ASSETS
------
<TABLE>
<CAPTION>
June 30, 1997
----------------------------------------------------
Pro Forma
WorldPort WWC Adjustments Pro Forma
----------- ---------- ------------ ---------
CURRENT ASSETS:
<S> <C> <C> <C> <C>
Cash $ 404,695 $ 559 $ (37,500) $ 367,754
Accounts receivable 652,257 -- -- 652,257
Note receivable, including accrued interest 293,611 -- -- 293,611
Prepaid expenses and other current assets 199,402 5,570 -- 204,972
----------- ----------- ---------- ---------
Total current assets 1,549,965 6,129 (37,500) 1,518,594
PROPERTY AND EQUIPMENT, net 1,175,952 2,812 -- 1,178,764
OTHER ASSETS
Intangible assets 5,726,081 -- 1,301,019 7,027,100
Other 74,290 40 (37,500) 36,830
----------- ----------- ---------- ---------
TOTAL ASSETS $ 8,526,288 $ 8,981 $1,226,019 $9,761,288
=========== =========== ========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Short-term debt $ 800,000 $ 10,000 $ 175,000 $ 985,000
Current portion of capital lease obligations 144,076 -- -- 144,076
Accounts payable and accrued expenses 2,186,115 -- -- 2,186,115
Other current liabilities 111,728 -- -- 111,728
----------- ---------- --------- -----------
Total current liabilities 3,241,919 10,000 175,000 3,426,919
LONG-TERM OBLIGATIONS UNDER CAPITAL LEASES,
net of current portion 309,916 -- -- 309,916
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Preferred stock, -- -- -- --
Common stock 1,463 4,000 140 1,603
(4,000)
Additional paid-in capital 5,906,416 -- 1,049,860 6,956,276
Retained deficit (933,426) (5,019) 5,019 (933,426)
----------- ---------- --------- -----------
Total stockholders' equity (deficit) 4,974,453 (1,019) 1,051,019 6,024,453
----------- ---------- --------- -----------
TOTAL LIABILITIES
AND STOCKHOLDERS' EQUITY $ 8,526,288 $ 8,981 $ 1,226,019 $ 9,761,288
=========== ========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
WORLDPORT COMMUNICATIONS, INC.
PRO FORMA COMBINED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Year ended December 31, 1996
---------------------------------------------------------------------
Pro Forma
WorldPort TNC WWC Adjustments Pro Forma
----------- ----------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C>
NET SALES $ -- $ 12,486,621 $ 61,108 $ -- $ 12,547,729
COST OF SALES -- 8,987,033 -- -- 8,987,033
----------- ----------- ----------- ------------ ------------
Gross margin -- 3,499,588 61,108 -- 3,560,696
OPERATING EXPENSES:
Selling, general and administrative expenses 270,591 4,574,993 51,575 (130,676)(a) 4,766,483
Depreciation and amortization 105,000 (b)
-- 510,167 784 651,805 (c) 1,267,756
----------- ----------- ----------- ------------ -----------
Operating income (loss) (270,591) (1,585,572) 8,749 (626,129) (2,473,543)
OTHER INCOME (EXPENSE):
Interest expense (23,706) (226,320) -- -- (250,026)
Other income (expense) 34,399 60,358 -- -- 94,757
----------- ----------- ----------- ----------- ------------
Income (loss) from continuing operations $ (259,898) $(1,751,534) $ 8,749 $ (626,129) $(2,628,812)
=========== =========== =========== ============ ============
PRO FORMA LOSS PER SHARE (0.35)
============
PRO FORMA WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 7,508,334(e)
============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
WORLDPORT COMMUNICATIONS, INC.
PRO FORMA COMBINED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Six Months ended June 30, 1997
-------------------------------------------------------------------------
Pro Forma
WorldPort TNC WWC Adjustments Pro Forma
---------- ----------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C>
NET SALES $ 188,549 $ 3,577,473 $ -- $ -- $ 3,766,022
COST OF SALES 194,412 3,628,836 -- -- 3,823,248
---------- ----------- ----------- ------------ -----------
Gross margin (5,863) (51,363) -- -- (57,226)
OPERATING EXPENSES:
Selling, general and administrative expenses 652,648 1,561,774 12,962 (37,381) (a) 2,190,003
Depreciation and amortization 52,500 (b)
29,770 175,081 196 309,953 (c) 567,500
---------- ----------- ----------- ------------ -----------
Operating loss (688,281) (1,788,218) (13,158) (325,072) (2,814,729)
OTHER INCOME (EXPENSE):
Interest expense (9,025) (138,414) -- -- (147,439)
Other income (expense) 59,786 (178,366) -- 191,667 (d) 73,087
---------- ----------- ----------- ------------ -----------
Net loss $ (637,520) $(2,104,998) $ (13,158) $ (133,405) $(2,889,081)
========== =========== =========== =========== ===========
PRO FORMA LOSS PER SHARE $ (0.19)
===========
PRO FORMA WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 15,375,829(e)
===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
WORLDPORT COMMUNICATIONS, INC.
NOTES TO PRO FORMA COMBINED FINANCIAL STATEMENTS
(Unaudited)
1. GENERAL
-------
WorldPort Communications, Inc. and its subsidiaries, ("WorldPort" or the
"Company") is a facilities-based network provider of enhanced international
and domestic telecommunication services. Prior to the closing of the
acquisitions of Telenational Communications Limited Partnership ("TNC") and
The Wallace Wade Company ("WWC"), the Company was a development stage
enterprise and devoted substantially all of its efforts to identifying and
acquiring businesses, developing a public market for its stock and raising
capital.
The historical financial statements reflect the financial position and
results of operations of TNC and WWC on a stand-alone basis and were derived
from the respective financial statements presented elsewhere in this filing.
WWC had a March 31 fiscal year end. Because of the differing fiscal year end
for WWC, the financial position and results of operations for WWC have been
combined with those of the Company and TNC as of and for the year ended
December 31, 1996 and the six months ended June 30, 1997, respectively.
2. ACQUISITIONS
------------
On June 20, 1997, the Company acquired substantially all of the
telecommunications assets and operations of TNC. The assets and operations of
TNC were purchased in exchange for (i) 3,750,000 shares of the Company's
Common Stock (of which 1,000,000 shares are being held pursuant to an escrow
agreement for a period of 18 months following the closing subject to certain
purchase price adjustments described below) and (ii) the assumption by the
Company of certain indebtedness of TNC up to a maximum of $4.6 million,
inclusive of amounts advanced to TNC by the Company prior to the closing of
the acquisition. The final purchase price is subject to adjustment if (i)
liabilities in excess of $4.6 million are assumed, (ii) the Company is
required to invoke certain indemnifications by TNC, (iii) there are certain
expense overruns, or (iv) there are certain rejected contracts. In addition,
certain creditors of TNC have the option to convert all or a portion of their
debt into shares of the Company's Common Stock. The results of operations of
TNC are included in the financial statements of the Company from the date of
acquisition, June 20, 1997.
On July 3, 1997, the Company, through a wholly-owned subsidiary, merged WWC
into the Company. Mr. John Dalton, the Company's President and Chief
Executive Officer, was the sole shareholder of WWC. In connection with the
WWC acquisition, the Company delivered to Mr. Dalton (i) 1,400,000 shares of
the Company's Common Stock, of which 500,000 are being held pursuant to an
escrow agreement pending delivery to the Company of audited Financial
Statements of WWC and 900,000 shares are being held pursuant to an escrow
agreement subject to certain adjustments to the purchase price based on the
Company entering into business agreements that WWC was negotiating; (ii)
$75,000 cash; and (iii) a $175,000 promissory note payable.
3. UNAUDITED PRO FORMA COMBINED BALANCE SHEET ADJUSTMENT
-----------------------------------------------------
Records the purchase of WWC for (i) 1,400,000 shares of the Company's Common
Stock, (ii) $75,000 in cash, including $37,500 which was advanced to Mr.
Dalton, WWC's sole shareholder on June 6, 1997, and (iii) a $175,000
promissory note payable for a total estimated purchase price of $1,300,000.
F-6
<PAGE>
WORLDPORT COMMUNICATIONS, INC.
NOTES TO PRO FORMA COMBINED FINANCIAL STATEMENTS (Continued)
(Unaudited)
4. UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS ADJUSTMENTS
----------------------------------------------------------------
The following descriptions (a) through (e) correspond to the pro forma
adjustment columns included in the unaudited pro forma combined statements of
operations on pages F-4 and F-5.
a. Records the anticipated cost reductions to be realized from the
elimination of management fees payable to TNC's general partner.
b. Records pro forma contract amortization expense using a 5-year life.
c. Records pro forma goodwill amortization expense using a 10-year life.
d. Records the elimination of acquisition costs incurred and expensed by
TNC in connection with TNC's transaction with the Company.
e. Weighted average common shares outstanding assumes that the 3,750,000
common shares issued to TNC and the 1,400,000 common shares issued to
WWC were issued as of January 1, 1996.
F-7
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Telenational Communications Limited Partnership:
We have audited the accompanying balance sheets of Telenational Communications
Limited Partnership as of December 31, 1995 and 1996, and the related statements
of operations, partners' deficit and cash flows for the years then ended. These
financial statements are the responsibility of the Partnership'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 financial statements referred to above present fairly, in
all material respects, the financial position of Telenational Communications
Limited Partnership as of December 31, 1995 and 1996, and the results of its
operations and its cash flows for the years then ended in conformity with
generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Houston, Texas
July 1, 1997
F-8
<PAGE>
TELENATIONAL COMMUNICATIONS LIMITED PARTNERSHIP
BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS
------ December 31, June 20,
----------------------
1995 1996 1997
---------- ---------- ---------
(unaudited)
CURRENT ASSETS:
<S> <C> <C> <C>
Cash $ 80,249 $ - $ -
Accounts receivable, net of allowance for
doubtful accounts of $428,894, $667,426 and
$1,037,811, respectively 1,653,737 1,282,118 630,680
Prepaid expenses and other 21,560 59,609 189,212
--------- - ------- ---------
Total current assets 1,755,546 1,341,727 819,892
PROPERTY AND EQUIPMENT, net 2,197,358 1,275,458 1,121,152
INVESTMENT IN RELATED PARTY - 850,000 850,000
---------- --------- ---------
Total assets $3,952,904 $3,467,185 $2,791,044
========= ========== ==========
LIABILITIES AND PARTNERS' DEFICIT
---------------------------------
CURRENT LIABILITIES:
Current portion of long-term debt $ 850,000 $ 896,668 $1,301,577
Current portion of capitalized lease obligations 221,632 135,057 144,076
Revolving line of credit, related party - 640,391 614,283
Accounts payable and accrued expenses 3,791,511 3,342,577 3,595,412
Deferred revenue 411,261 130,467 107,666
---------- --------- ----------
Total current liabilities 5,274,404 5,145,160 5,763,014
LONG-TERM DEBT, net of current portion - 447,332 1,332,701
CAPITALIZED LEASE OBLIGATIONS, net of current portion 673,443 384,282 309,916
---------- --------- ----------
Total liabilities 5,947,847 5,976,774 7,405,631
PARTNERS' DEFICIT (1,994,943)(2,509,589)(4,614,587)
--------- --------- ---------
Total liabilities and
partners' deficit $3,952,904 $3,467,185 $2,791,044
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-9
<PAGE>
TELENATIONAL COMMUNICATIONS LIMITED PARTNERSHIP
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Six
Year ended December 31, months ended Period ended
------------------------ June 30, June 20,
1995 1996 1996 1997
------------------------ ------------ -------------
(unaudited)
<S> <C> <C> <C> <C>
NET SALES $16,338,078 $12,486,621 $ 5,702,508 $ 3,577,473
COST OF SALES 13,631,406 8,987,033 4,254,729 3,628,836
----------- ----------- ----------- -----------
Gross margin 2,706,672 3,499,588 1,447,779 (51,363)
OPERATING EXPENSES:
Selling, general and
administrative expenses 7,199,911 4,574,993 2,113,145 1,561,774
Depreciation and amortization 609,708 510,167 229,248 175,081
----------- ---------- ------------ -----------
Operating loss (5,102,947) (1,585,572) (894,614) (1,788,218)
OTHER INCOME (EXPENSE):
Interest expense (265,209) (226,320) (44,078) (138,414)
Loss on sale of assets (377,153) - - -
Gain on sale of domestic "1 Plus"
assets 4,529,802 - - -
Other income (expense) 302,743 60,358 74,431 (178,366)
----------- ---------- ------------ ------------
Loss from continuing operations (912,764) (1,751,534) (864,261) (2,104,998)
DISCONTINUED OPERATIONS (NOTE 10):
Loss from operations of discontinued
telemarketing division (362,000) (164,000) (164,000) -
Gain on disposal of telemarketing
division - 1,400,888 1,400,888 -
---------- ---------- ---------- ----------
Net income (loss) $(1,274,764) $ (514,646) $ 372,627 $ (2,104,998)
=========== ========== ========== ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-10
<PAGE>
TELENATIONAL COMMUNICATIONS LIMITED PARTNERSHIP
STATEMENTS OF PARTNERS' DEFICIT
<TABLE>
<CAPTION>
General Limited
Total Partner Partners
---------- ------------ -----------
<S> <C> <C> <C>
PARTNERS' EQUITY (DEFICIT), December 31, 1994 $ (720,179) $ (2,459,626) $ 1,739,447
NET LOSS (1,274,764) (137,910) (1,136,854)
---------- ----------- ----------
PARTNERS' EQUITY (DEFICIT), December 31, 1995 (1,994,943) (2,597,536) 602,593
NET LOSS (514,646) (55,677) (458,969)
---------- ----------- ----------
PARTNERS' EQUITY (DEFICIT), December 31, 1996 (2,509,589) (2,653,213) 143,624
NET LOSS (unaudited) (2,104,998) (227,729) (1,877,269)
----------- ----------- -----------
PARTNERS' (DEFICIT), June 20, 1997 (unaudited) $(4,614,587) $(2,880,942) $(1,733,645)
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-11
<PAGE>
TELENATIONAL COMMUNICATIONS LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Six
months ended Period ended
Year ended December 31, June 30, June 20,
----------------------- ------------ ------------
1995 1996 1996 1997
----------------------- ------------ ------------
(unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C> <C> <C>
Net income (loss) $(1,274,764) $ (514,646) $ 372,627 $(2,104,998)
Adjustments to reconcile net income
(loss) to net cash used in operating
activities-
Depreciation and amortization 609,708 510,167 229,248 175,081
Gain on sale of domestic "1 Plus"
assets (4,529,802) - - -
Gain on disposal of discontinued
operations - (1,400,888) (1,400,888) -
Loss on asset disposals 377,153 - - -
Bad debt expense 545,341 206,791 71,220 384,861
(Increase) decrease in accounts
receivable 323,522 (153,230) (853,227) 266,577
(Increase) decrease in prepaid
expenses and other assets 547,984 (38,952) 12,617 (129,603)
Increase (decrease) in accounts
payable and accrued expenses 1,718,521 (164,945) 336,779 252,835
Decrease in referred revenue (387,237) (280,794) (65,812) (22,801)
--------- --------- -------- --------
Net cash used in
operating activities (2,069,574) (1,836,497) (1,297,436) (1,178,048)
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from disposition of assets 3,413,577 850,000 850,000 -
Capital expenditures (277,695) (108,404) (51,529) (20,775)
---------- --------- -------- --------
Net cash provided by
(used in)investing
activities 3,135,882 741,596 798,471 (20,775)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from revolving line of
credit 785,916 1,104,684 838,000 19,000
Proceeds from issuance of notes
payable 850,000 494,000 - 1,378,000
Principal payments on revolving line
of credit (2,325,049) (464,293) (350,162) (45,108)
Principal payments on notes payables (202,000) - - (87,722)
Principal payments on capitalized
lease (173,923) (119,739) (69,122) (65,347)
---------- --------- ------- ---------
Net cash provided by
(used in) financing
activities (1,065,056) 1,014,652 418,716 1,198,823
---------- --------- ------- ---------
NET INCREASE (DECREASE) IN CASH 1,252 (80,249) (80,249) -
CASH, beginning of period 78,997 80,249 80,249 -
---------- --------- --------- ----------
CASH, end of period $ 80,249 $ - $ - $ -
========== ========= ========= ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-12
<PAGE>
TELENATIONAL COMMUNICATIONS LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS (Continued)
<TABLE>
<CAPTION>
Six
Months ended Period ended
Year ended December 31, June 30, June 20,
------------------------ ------------ ------------
1995 1996 1996 1997
------------------------ ------------ ------------
(unaudited)
<S> <C> <C> <C> <C>
CASH PAID FOR INTEREST $ 405,145 $ 109,902 $ 70,759 $ 129,752
========== ========== ========== ==========
NON-CASH INVESTING AND
FINANCING ACTIVITIES
Assets acquired under capital lease $1,068,998 $ - $ - $ -
========== ========== ========== ==========
Sale of telemarketing division
Preferred stock received $ - $ 850,000 $ - $ -
========== ========== ========== ==========
Liabilities assumed by buyer $ - $ (539,986) $ - $ -
========== ========== ========== ==========
Assets transferred to buyer $ - $ 318,058 $ - $ -
========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-13
<PAGE>
TELENATIONAL COMMUNICATIONS LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
------------------------------------------------
Description of Business
-----------------------
Telenational Communications Limited Partnership (the "Partnership" or "TNC")
is a Nebraska limited partnership providing enhanced international and
domestic telecommunications services. The Partnership is a facilities-based
reseller of services of interexchange carriers that operates
telecommunications switches and operator services platforms in Omaha,
Nebraska.
On June 20, 1997, the Partnership sold substantially all of its
telecommunications assets and operations to WorldPort Communications, Inc.
("WorldPort"), in exchange for (i) 3,750,000 shares of WorldPort's common
stock (of which 1,000,000 shares are being held pursuant to an escrow
agreement subject to certain purchase price adjustments described below) and
(ii) the assumption by WorldPort of certain indebtedness of the Partnership
up to a maximum of $4.6 million, inclusive of amounts advanced to TNC by the
Company prior to the closing of the acquisition. The final purchase price is
subject to adjustment if (i) liabilities in excess of $4.6 million are
assumed, (ii) WorldPort is required to invoke certain indemnifications by
the Partnership, (iii) there are certain expense overruns or (iv) there are
certain rejected contracts. Prior to the closing of the asset purchase
agreement, WorldPort loaned the Partnership $1,178,000 to provide working
capital.
On April 29, 1997, the Partnership and WorldPort entered into a management
service agreement (the "MSA"), wherein WorldPort provided to the Partnership
day-to-day executive management services. The MSA provides certain
indemnifications to WorldPort as well as a covenant by the Partnership not to
sue or assert any claim or action against WorldPort arising from the services
provided by WorldPort pursuant to the MSA. The MSA terminated with the
closing of the asset purchase agreement on June 20, 1997.
The Partnership has operated at a loss for the past several years and
continued to operate at a loss through June 20, 1997. As a result, the
Partnership has experienced negative operating cash flows and has a
substantial working capital deficit as of December 31, 1996 and June 20,
1997. Management of the Partnership considered various options to address the
liquidity and working capital concerns and, as discussed above, the
Partnership sold substantially all of its operating assets and a substantial
portion of its liabilities to WorldPort. WorldPort had no operations prior to
its acquisition of the assets and on-going operations of the Partnership and
there can be no assurance that WorldPort will be effective in reducing future
operating losses, negative cash flows or the working capital deficit or
improving the liquidity of the operations and assets acquired from the
Partnership.
Income Taxes
------------
The Partnership is not subject to income taxes and, accordingly, no provision
for income taxes has been recorded in the accompanying financial statements.
Property and Equipment
----------------------
Property and equipment items are carried at cost. Expenditures for additions,
improvements and renewals which add significant value to the asset or extend
the life of the asset are capitalized.
F-14
<PAGE>
TELENATIONAL COMMUNICATIONS LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS - (Continued)
Expenditures for maintenance and repairs are expensed as incurred. The
Partnership provides for depreciation of property and equipment items using
the straight-line method based on the estimated useful lives of the assets
ranging from five to 31 years.
The Partnership reviews its property and equipment periodically for
indicators of impairment in value. For the years ended December 31, 1995 and
1996, there was no loss resulting from an impairment in value of the
Partnership's property and equipment.
Interim Financial Statements
----------------------------
The accompanying financial statements have been prepared by the Partnership
without audit pursuant to the rules and regulations of the Securities and
Exchange Commission. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted pursuant to
such rules and regulations; however, management believes that the disclosures
herein are adequate to make the information presented not misleading.
In the opinion of the Partnership's management, the accompanying financial
statements contain all adjustments (consisting of only normal recurring
adjustments) necessary to present fairly the Partnership's financial position
as of June 20, 1997 and the results of operations and cash flows for the six
months ended June 30, 1996 and the period ended June 20, 1997. The results of
operations for the six months ended June 30, 1996 and the period ended June
20, 1997 are not necessarily indicative of the operating results for the full
years.
Use of Estimates
----------------
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Concentration of Risk
---------------------
Financial instruments that potentially subject the Partnership to
concentrations of risk are accounts receivable. The Partnership continually
evaluates the creditworthiness of its customers; however, the Partnership
generally does not require collateral. The risk is mitigated by the large
number of entities comprising the Partnership's customer base and their
geographical dispersion across several states and countries. The Partnership
establishes its customer base through various agent relationships. Although
no single customer accounts for 10 percent of total sales, several agents'
customer bases account for sales in excess of 10 percent of total sales. For
the years ended December 31, 1995 and 1996, the Partnership had three
significant vendors that comprised 38 percent of total carrier services for
both years.
F-15
<PAGE>
TELENATIONAL COMMUNICATIONS LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS - (Continued)
Revenue Recognition
-------------------
The Partnership recognizes revenue from its telecommunications services as
such services are provided to its customers.
2. PROPERTY AND EQUIPMENT
----------------------
Major categories of property and equipment are as follows:
December 31,
------------------------
1995 1996
----------- -----------
Computer equipment and software $ 3,334,661 $ 1,682,302
Switch and peripheral equipment 1,290,629 1,292,683
Furniture and fixtures 952,803 805,175
Leasehold improvements 345,592 320,874
Vehicle
17,034 17,034
----------- -----------
5,940,719 4,118,068
Less: Accumulated depreciation
and amortization (3,743,361) (2,842,610)
----------- -----------
$ 2,197,358 $ 1,275,458
=========== ===========
3. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
-------------------------------------
Accounts payable and accrued expenses consist of the following:
December 31,
------------------------
1995 1996
------------ -----------
Accounts payable $ 3,157,261 $ 2,984,176
Accrued management fees 14,720 192,498
Accrued interest 26,681 108,311
Accrued expenses 400,787 46,492
Deposits 192,062 11,100
------------ -----------
$ 3,791,511 $ 3,342,577
============ ===========
4. INVESTMENT IN RELATED PARTY
---------------------------
Investment in related party consists of non-marketable preferred stock of a
private, related company, in which one of the officers of TNC is a
stockholder. The investment is carried at the lower of cost or net realizable
value. The estimated fair value of the investment approximated the carrying
amount at December 31, 1996.
F-16
<PAGE>
TELENATIONAL COMMUNICATIONS LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS - (Continued)
5. CAPITAL LEASE OBLIGATIONS
-------------------------
TNC has financed the acquisition of certain property and equipment through
leases with an equipment supplier. These arrangements have been recorded as
capital leases in the accompanying financial statements. The carrying value
of the assets which are included in property and equipment financed pursuant
to these leases is as follows:
December 31,
-----------------------
1995 1996
---------- ----------
Property and equipment $ 707,433 $ 707,433
Less: Accumulated
amortization (113,189) (230,150)
---------- ----------
Net leased property and
equipment $ 594,244 $ 477,283
========== ==========
At December 31, 1996, minimum lease payments under these capital leases are
as follows:
1997 $ 194,711
1998 194,711
1999 194,711
2000 57,194
---------
Total minimum lease payments 641,327
Less: Amount representing interest (121,988)
---------
Present value of minimum lease payments 519,339
Less: Current maturities (135,057)
---------
Long-term capital lease obligations $ 384,282
=========
6. DEBT
----
The Partnership's long-term debt is as follows:
December 31,
-----------------------
1995 1996
-----------------------
Value Partners, Ltd. $ 850,000 $ 850,000
Demand notes payable to
various individuals and
limited partners - 494,000
---------- ----------
850,000 1,344,000
Less: Current portion (850,000) (896,668)
---------- ----------
Long - term debt $ - $ 447,332
========== ==========
The note payable to Value Partners, Ltd. is an unsecured promissory note,
bearing interest at 7 percent dated November 9, 1995 and due November 9,
F-17
<PAGE>
TELENATIONAL COMMUNICATIONS LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS - (Continued)
1996. On March 20, 1997, this note was restructured and now bears interest at
15 percent and is payable in monthly installments of $52,861 through
September 1, 1998. The restructured note is secured by all of the assets of
the Partnership.
During 1997, certain individuals and limited partners loaned monies to the
Partnership on an unsecured basis. These loans are payable on demand and bear
interest at 8 percent.
7. RELATED-PARTY TRANSACTIONS
--------------------------
The Partnership has contracted to pay a management fee to its general
partner, a corporation. For 1995 and 1996, this fee amounted to $191,835 and
$130,676, which is equal to 1 percent of gross revenue as defined in the
partnership agreement.
The Partnership has an unsecured revolving line of credit with an individual
who is a limited partner and the major shareholder of its general partner.
The individual loans money to the Partnership on a regular basis during
periods of reduced cash flow. The Partnership makes payments on the line of
credit when excess cash is available. As of December 31, 1996, the amount
outstanding on this line of credit amounted to $640,391.
Various individuals and limited partners have advanced funds to the
Partnership in the form of unsecured loans. (See Note 6).
In 1995, the Partnership sold its primary office building to shareholders of
the general partnership for $800,000. Included in loss on sale assets is
$327,202 attributable to the sale of the building.
8. EMPLOYEE BENEFIT PLAN
---------------------
The Partnership has a qualified 401(k) profit-sharing plan covering
substantially all full-time employees with over one year of service. Under
the plan, qualified employees may elect to defer up to 15 percent of their
annual compensation through a salary reduction arrangement. The Partnership
contributes 25 percent of the first 5 percent of compensation contributed to
the plan by each participating employee. Total Partnership contributions to
the plan under this matching agreement were $12,508 for 1995 and $9,234 for
1996.
9. SALE OF "1 PLUS" ASSETS
-----------------------
In July 1995, the Partnership sold its domestic "1 Plus" long-distance
telephone business consisting of its entire domestic customer base and the
related accounts receivable to Midcom Communications, Inc. ("Midcom") for a
combination of cash and the assumption of certain liabilities. The
Partnership recognized a gain of $4,529,802 in connection with the sale of
its "1 Plus" assets to Midcom.
10. DISCONTINUED OPERATIONS
-----------------------
On April 1, 1996, the Partnership sold its telemarketing division, consisting
of its customer base and the related accounts receivable along with certain
depreciable property.
F-18
<PAGE>
TELENATIONAL COMMUNICATIONS LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS - (Continued)
The following is a summary of the estimated loss from operations of the
discontinued telemarketing division:
December 31,
-------------------------
1995 1996
----------- -----------
Income-
Sales $ 2,098,000 $ 599,000
Cost of sales 480,000 125,000
----------- -----------
Gross profit 1,618,000 474,000
Operating and administrative
expenses 1,980,000 638,000
----------- -----------
Net loss $ (362,000) $ (164,000)
=========== ===========
11. COMMITMENTS AND CONTINGENCIES
-----------------------------
Operating Leases
----------------
The Partnership leases the facility from which it operates and certain office
equipment under noncancelable operating leases that expire at various dates
through 2004. Terms of the leases vary but generally require the Partnership
to pay a portion of the real estate or personal property taxes, insurance and
certain maintenance expenses. Rent expense for 1996, exclusive of ancillary
costs, amounted to $60,000 for facilities and $26,727 for equipment.
Future minimum facility rental payments, exclusive of the ancillary charges,
are as follows:
Year ended-
1997 $60,000
1998 60,000
1999 60,000
2000 60,000
2001 60,000
Litigation
----------
From time to time, the Partnership is involved in various lawsuits or claims
arising from the normal course of business. In the opinion of management,
none of these lawsuits or claims will have a material adverse effect on the
financial statements or results of operations of the Partnership.
F-19
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To The Wallace Wade Company:
We have audited the accompanying balance sheets of The Wallace Wade Company (a
Texas corporation) as of March 31, 1996 and 1997, and the related statements of
income and retained earnings (deficit) 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 opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of The Wallace Wade Company as of
March 31, 1996 and 1997 and the results of its operations and its cash flows for
the years then ended in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
Houston, Texas
July 8, 1997
F-20
<PAGE>
THE WALLACE WADE COMPANY
BALANCE SHEETS
<TABLE>
<CAPTION>
March 31,
------------------ June 30,
1996 1997 1997
-------- -------- --------
(unaudited)
ASSETS
------
CURRENT ASSETS:
<S> <C> <C> <C>
Cash $5,941 $7,508 $ 559
Accounts receivable 3,000 6,013 -
Advances to officer 5,617 5,570 5,570
------ ------ -------
Total current assets 14,558 19,091 6,129
PROPERTY AND EQUIPMENT, net 3,792 3,008 2,812
OTHER ASSETS 40 40 40
------ ------ -------
Total assets $18,390 $22,139 $8,981
======= ======= ======
LIABILITIES AND SHAREHOLDER'S EQUITY
------------------------------------
CURRENT LIABILITIES:
Note payable, related party $10,000 $10,000 $10,000
Note payable 750 - -
Commissions payable 4,250 - -
------ ------ -------
Total liabilities 15,000 10,000 10,000
SHAREHOLDER'S EQUITY:
Common stock, $1 par value, 1,000,000
shares authorized, 4,000 shares 4,000 4,000 4,000
issued and outstanding
Retained earnings (deficit) (610) 8,139 (5,019)
------ ------ -------
Total liabilities and
shareholder's equity $18,390 $22,139 $8,981
======= ======= ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-21
<PAGE>
THE WALLACE WADE COMPANY
COMBINED STATEMENTS OF INCOME AND RETAINED EARNINGS (DEFICIT)
<TABLE>
<CAPTION>
Three
Year Ended Months Ended
March 31, June 30,
----------------- ------------------
1996 1997 1996 1997
-------- -------- -------- --------
(unaudited)
<S> <C> <C> <C> <C>
REVENUES $ 27,030 $ 61,108 $ 19,801 $ -
OPERATING EXPENSES 14,500 46,006 13,508 11,974
GENERAL AND ADMINISTRATIVE EXPENSES 5,167 5,569 1,633 988
DEPRECIATION 772 784 196 196
------- -------- -------- -------
NET INCOME (LOSS) 6,591 8,749 4,464 (13,158)
RETAINED EARNINGS (DEFICIT)
AT BEGINNING OF PERIOD (7,201) (610) (610) 8,139
------- -------- -------- -------
RETAINED EARNINGS (DEFICIT )AT END OF PERIOD $ (610) $ 8,139 $ 3,854 $(5,019)
======= ======== ======== =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-22
<PAGE>
THE WALLACE WADE COMPANY
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended Three Months Ended
Ended March 31, Ended June 30,
----------------- ------------------
1996 1997 1996 1997
-------- -------- -------- ---------
(unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C> <C> <C>
Net income (loss) $ 6,591 $ 8,749 $ 4,464 $(13,158)
Adjustments to reconcile net income (loss)
to net cash provided by (used in) operating
activities-
Depreciation 772 784 196 196
(Increase) decrease in assets-
Accounts receivable (3,000) (3,013) 3,000 6,013
Advances to officer (5,617) 47 4,383 -
Increase (decrease) in liabilities-
Commissions payable 2,150 (4,250) (4,250) -
----- ------ ------ --------
Net cash provided by (used
in) operating activities 896 2,317 7,793 (6,949)
-------- ----- ----- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of depreciable property (459) - - -
------- ------- ------- -------
Net cash used in investing
activities (459) - - -
------- ------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of note payable 750 - - -
Principal payments on note payable - (750) (750) -
------- ------ ------ ------
Net cash provided by (used in)
Financing activities 750 (750) (750) -
------- ------ ------ ------
NET INCREASE IN CASH 1,187 1,567 7,043 (6,949)
CASH, beginning of period 4,754 5,941 5,941 7,508
------ ------ ------- -----
CASH, end of period $5,941 $7,508 $12,984 $ 559
====== ====== ======= =====
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-23
<PAGE>
THE WALLACE WADE COMPANY
NOTES TO FINANCIAL STATEMENTS
1. BUSINESS AND ORGANIZATION
-------------------------
The Wallace Wade Company ("WWC" or the "Company"), a Texas corporation, is a
telecommunications marketing consulting services firm which produces and
implements marketing strategies for clients ranging from small companies to
large corporate clients.
On July 3, 1997, the Company completed a merger into a wholly-owned
subsidiary of WorldPort Communications, Inc. ("WorldPort") pursuant to that
certain Agreement and Plan of Merger dated April 20, 1997 (the "Merger"). In
connection with the Merger, WorldPort delivered to the Company's sole
shareholder (i) 1,400,000 shares of the WorldPort's Common Stock, of which
500,000 shares are being held pursuant to an escrow agreement pending
delivery of audited Financial Statements of the Company to WorldPort and
900,000 shares are being held pursuant to the escrow agreement subject to
certain adjustments to the purchase price based on WorldPort entering into
business agreements that the Company was negotiating, (ii) $75,000 cash, of
which $37,500 was advanced to the Company's sole shareholder on June 6, 1997
with the remaining $37,500 being deferred at the shareholder's election until
September 15, 1997; and (iii) a Promissory Note in the amount of $175,000
payable as follows: one payment of $50,000 payable on October 1, 1997, and
two payments of $62,500 payable on February 1, 1998 and July 1, 1998.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
------------------------------------------
Property and Equipment
----------------------
Property and equipment are stated at cost, and depreciation is computed using
the double declining balance method of depreciation.
Expenditures for repairs and maintenance are charged to expense when
incurred. Expenditures for major renewals and betterments, which extend the
useful lives of existing equipment, are capitalized and depreciated. Upon
retirement or disposition of property and equipment, the cost and related
accumulated depreciation are removed from the accounts and any resulting gain
or loss is recognized in the statements of income.
Revenue Recognition
-------------------
The Company recognizes revenue from its consulting services as such services
are performed. The cost, including commissions, is accrued to properly match
the cost associated with the revenue recognized.
Income Taxes
------------
The Company follows the liability method of accounting for income taxes in
accordance with Statement of Financial Accounting Standards No. 109. Under
this method, deferred income taxes are recorded based upon differences
between the financial reporting and tax bases of assets and liabilities and
are measured using the enacted tax rates and laws that will be in effect when
the underlying assets or liabilities are recovered or settled. The Company
F-24
<PAGE>
THE WALLACE WADE COMPANY
NOTES TO FINANCIAL STATEMENTS (Continued)
has recorded a full valuation allowance against all deferred tax assets due
to the uncertainty of ultimate realizability.
Interim Financial Statements
----------------------------
The accompanying financial statements have been prepared by the Company
without audit pursuant to the rules and regulations of the Securities and
Exchange Commission. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted pursuant to
such rules and regulations; however, management believes that the disclosures
herein are adequate to make the information presented not misleading.
In the opinion of the Company's management, the accompanying financial
statements contain all adjustments (consisting of only normal recurring
adjustments) necessary to present fairly the Partnership's financial position
as of June 30, 1997 and the results of operations and cash flows for thE
three months ended June 30, 1996 and 1997, respectively. The results of
operations for the three months ended June 30, 1996 and 1997 are not
necessarily indicative of the operating results for the full years.
Use of Estimates
----------------
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
3. PROPERTY AND EQUIPMENT
----------------------
Major classes of property and equipment consist of the following as of March
31, 1996 and 1997:
1996 1997
---------- ----------
Office furniture $ 2,500 $ 2,500
Office equipment 2,671 2,671
---------- ----------
5,171 5,171
Less- Accumulated depreciation (1,379) (2,163)
---------- ----------
$ 3,792 $ 3,008
========== ==========
4. NOTE PAYABLE
------------
Note payable, related party consists of an unsecured, non-interest bearing
demand note payable to the sole shareholder of the Company.
F-25
