UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------------------
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) August 2, 2000
024996
(Commission File Number)
------------------------------
INTERNET COMMERCE CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 133645702
(State of Incorporation) (IRS Employer
Identification Number)
805 Third Avenue, Ninth Floor, New York, New York 10022
(Address of registrant's principal executive office)
(212) 271-7640
(Registrant's telephone number)
------------------------------
<PAGE>
ITEM 5
On August 2, 2000, Internet Commerce Corporation ("ICC") entered into an
Agreement and Plan of Merger (the "Merger Agreement") with Intercoastal Data
Corporation, a Georgia corporation ("IDC"), and the IDC shareholders (the
"Sellers"), pursuant to which IDC merged with and into ICC (the "IDC Merger") on
August 3, 2000 (the "Effective Time") and is being operated as a division of
ICC.
In connection with the IDC Merger, the Sellers received a total of 190,861
shares of ICC Class A Common Stock. ICC has agreed to register the resale of
these shares, and if the average market value of the shares for the ten days
ending four days prior to the effective date of the registration statement
covering the resale is less than the average value of the shares for the ten
days ending four days prior to the effective time of the IDC Merger ($17.34 per
share), ICC will issue up to an additional 47,715 shares to the Sellers to
restore this decline in value.
IDC is engaged in the development, sale, marketing or other exploitation
of business-to-business electronic data interchange standards-based applications
for standard-based EDI exchange over value-added networks, private networks
intranets, extranets or the Internet. For the fiscal year ended March 31, 2000,
IDC had total revenues of $1,444,736 and net income of $50,140. IDC also had a
portfolio of marketable securities that had a value of approximately $1,300,000
at the Effective Time. IDC was founded in 1972 and is headquartered in
Carrollton, Georgia
The foregoing description of the IDC Merger is qualified in its entirety
by reference to the Merger Agreement which is filed as an exhibit to this Form
8-K and is hereby incorporated by reference herein.
ITEM 7. Financial Statements, Pro Forma Financial Information and Exhibits
(a) Historical Financial Statements of Intercoastal Data Corporation.
(b) Pro-Forma Financial Information.
(c) Exhibits.
Exhibit Number Title
-------------- -----
2 Agreement and Plan of Merger, dated as of
August 2, 2000, among Internet Commerce
Corporation, Intercoastal Data Corporation
and the individuals listed on the signature
pages thereto.
-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.
INTERNET COMMERCE CORPORATION
By: /s/ Walter M. Psztur
------------------------------
Name: Walter M. Psztur
Title: Chief Financial Officer
Date: August 11, 2000
-3-
<PAGE>
Exhibit Index
(a) Historical Financial Statements of Intercoastal Data Corporation.
(b) Pro-Forma Financial Information.
(c) Exhibits.
Exhibit Number Title
2 Agreement and Plan of Merger, dated as of
August 2, 2000, among Internet Commerce
Corporation, Intercoastal Data Corporation
and the individuals listed on the signature
pages thereto.
<PAGE>
INTERCOASTAL DATA CORPORATION
FINANCIAL STATEMENTS
JANUARY 31, 2000 AND 1999
<PAGE>
INTERCOASTAL DATA CORPORATION
TABLE OF CONTENTS
-----------------
PAGE
----
Independent auditors' report 1
Financial statements:
Balance sheets 2 - 3
Statements of income and comprehensive income 4
Statements of retained earnings 5
Statements of cash flows 6 - 7
Notes to financial statements 8 - 12
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
of Intercoastal Data Corporation
We have audited the accompanying balance sheets of INTERCOASTAL DATA CORPORATION
(a Georgia Corporation) as of January 31, 2000 and 1999, and the related
statements of income and comprehensive income, 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 audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of INTERCOASTAL DATA CORPORATION
as of January 31, 2000 and 1999, and the results of its operations, its retained
earnings, and its cash flows for the years then ended in conformity with
generally accepted accounting principles.
/s/ Habif, Arogeti & Wynne, LLP
Atlanta, Georgia
April 14, 2000
<PAGE>
INTERCOASTAL DATA CORPORATION
BALANCE SHEETS
JANUARY 31,
ASSETS
------
2000 1999
----------- -----------
Current assets
--------------
Cash $ 232,136 $ 82,023
Investments in marketable securities 1,040,160 864,979
Accounts receivable 162,349 126,512
Prepaid expenses 3,021 3,410
Deferred tax asset 948 34,771
----------- -----------
Total current assets 1,438,614 1,111,695
----------- -----------
Property, plant, and equipment, at cost
---------------------------------------
Land 43,549 43,549
Buildings 332,135 325,572
Furniture and equipment 347,817 350,570
Automobiles 42,013 42,013
Computer software 107,934 106,329
----------- -----------
873,448 868,033
Less accumulated depreciation (486,455) (440,156)
----------- -----------
386,993 427,877
$ 1,825,607 $ 1,539,572
=========== ===========
See audiors' report and accompanying notes
-2-
<PAGE>
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
<TABLE>
<CAPTION>
2000 1999
------------- --------
<S> <C> <C>
Current liabilities
-------------------
Accounts payable $ 790 $ 4,023
Accrued expenses 21,711 21,096
Deferred revenue 53,586 59,397
Obligations under capital lease, current portion - related party 4,851 4,221
Income taxes payable 31,317 --
---------- ----------
Total current liabilities 112,255 88,737
---------- ----------
Long-term liabilities
---------------------
Obligations under capital lease,
net of current portion - related party 17,745 22,597
Deferred tax liability 294,417 246,854
---------- ----------
312,162 269,451
---------- ----------
Stockholders' equity
--------------------
Common stock; $.50 par value,
1,000,000 authorized, 43,700 issued and outstanding 21,850 21,850
Additional paid-in capital 4,178 4,178
Retained earnings 637,968 566,721
Accumulated other comprehensive income:
Unrealized gain on investments in marketable securities 737,194 588,635
---------- ----------
1,401,190 1,181,384
---------- ----------
$1,825,607 $1,539,572
========== ==========
See auditors' report and accompanying notes
</TABLE>
-3-
<PAGE>
INTERCOASTAL DATA CORPORATION
STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
FOR THE YEARS ENDED JANUARY 31,
<TABLE>
<CAPTION>
2000 1999
----------- -----------
<S> <C> <C>
Sales $ 1,528,412 $ 1,307,319
----- ----------- -----------
Operating Expenses
Cost of service 391,305 361,321
Selling, general and administrative expenses 1,014,293 975,481
----------- -----------
1,405,598 1,336,802
Income (loss) from operations 122,814 (29,483)
----------- -----------
Other income (expenses)
-----------
Interest expense (3,489) (4,041)
Interest income 2,849 2,426
Dividend income 8,497 5,869
Gain on investments in marketable
securities 60,337 --
Loss on disposal of assets (7,058) (740)
----------- -----------
61,136 3,514
----------- -----------
Income (loss) before taxes 183,950 (25,969)
Provision for income taxes 112,703 29,599
-------------------------- ----------- -----------
Net income (loss) 71,247 (55,568)
Other comprehensive income
--------------------------
Unrealized gains on marketable equity securities:
Unrealized holding gains arising during the period 148,559 95,557
----------- -----------
Total comprehensive income $ 219,806 $ 39,989
=========== ===========
</TABLE>
See auditors' report and accompanying notes
-4-
<PAGE>
INTERCOASTAL DATA CORPORATION
STATEMENTS OF RETAINED EARNINGS
FOR THE YEARS ENDED JANUARY 31, 2000 AND 1999
Balance, February 1, 1998 $ 622,289
Net loss (55,568)
---------
Balance, January 31, 1999 566,721
Net income 71,247
---------
Balance, January 31, 2000 $ 637,968
=========
See auditors' report and accompanying notes
-5-
<PAGE>
INTERCOASTAL DATA CORPORATION
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED JANUARY 31,
Increase (Decrease) In Cash
<TABLE>
<CAPTION>
2000 1999
--------- ---------
<S> <C> <C>
Cash flows from operating activities
------------------------------------
Net income (loss) $ 71,247 $ (55,568)
--------- ---------
Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation 41,508 51,872
Amortization 7,363 7,140
Deferred income taxes 81,386 29,599
Gain on investments in marketable securities (60,337) --
Loss on disposal of property and equipment 7,058 740
Changes in assets and liabilities
Accounts receivable (35,837) 11,750
Prepaid expenses 389 607
Accounts payable (3,233) (6,404)
Accrued expenses 615 1,752
Deferred revenue (5,811) (11,576)
Income taxes payable 31,317 --
--------- ---------
Total adjustments 64,418 85,480
--------- ---------
Net cash provided by operating activities 135,665 29,912
--------- ---------
Cash flows from investing activities
------------------------------------
Acquisition of property, plant and equipment (15,045) (23,637)
Proceeds from sale of marketable securities 104,913 --
Investments in marketable securities (71,198) (2,194)
--------- ---------
Net cash provided (used) by investing activities 18,670 (25,831)
--------- ---------
Cash flows from financing activities
------------------------------------
Principal payments on obligations under capital lease (4,222) (3,671)
--------- ---------
Net increase in cash 150,113 410
Cash, beginning of year 82,023 81,613
--------- ---------
Cash, end of year $ 232,136 $ 82,023
========= =========
</TABLE>
See auditor's report and accompanying notes
-6-
<PAGE>
Increase (Decrease) In Cash
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
2000 1999
--------- --------
Cash paid during the years for
Interest $3,489 $4,041
See auditor's report and accompanying notes
-7-
<PAGE>
INTERCOASTAL DATA CORPORATION
NOTES TO FINANCIAL STATEMENTS
JANUARY 31, 2000 AND 1999
Note A
Summary of Significant Accounting Policies
Nature of Operations:
--------------------
INTERCOASTAL DATA CORPORATION (IDC), a Georgia corporation incorporated in 1972,
licenses EDI software and provides EDI services to users throughout the United
States.
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.
Estimates are used for, but not limited to, the accounting for doubtful
accounts, depreciation, deferred revenue, and accrued expenses. Actual results
could differ from those estimates.
Investments in Marketable Securities:
------------------------------------
The Company's marketable equity securities consist of equity securities that
have a readily determinable fair market value. Management determines the
appropriate classification of its investments at the time of purchase and
re-evaluates such determinations at each balance sheet date.
Since the Company does not intend to sell these securities in the near term,
they are classified as "available for sale" and, accordingly, are carried at
fair value with unrealized gains and losses reported as a separate component
within the stockholders' equity section of the balance sheets. Realized gains
and losses on all marketable securities are determined by specific
identification and are charged or credited to current earnings. The Company
accounts for any sales of investments on a first-in, first-out basis.
Accounts Receivable:
-------------------
The Company considers all accounts receivable to be fully collectible;
therefore, no allowance for doubtful accounts has been provided. The Company
does not require collateral for its accounts receivable. The amount of
accounting loss due to credit risk the Company would incur if the parties to the
accounts receivable failed to perform according to the terms of the agreements
would be the balance of the accounts receivable.
Property, Plant and Equipment:
-----------------------------
Property, plant, and equipment is carried at cost. Expenditures for maintenance
and repairs are expensed currently while renewals and betterments that
materially extend the life of an asset are capitalized. The cost of assets sold,
retired, or otherwise disposed of and the related allowance for depreciation are
eliminated from the accounts, and any resulting gain or loss is included in
operations.
-8-
<PAGE>
Depreciation is provided using both straight-line and accelerated methods over
the estimated useful lives of the assets, which are as follows:
Buildings 40 years
Furniture and equipment 5 - 7 years
Automobiles 4 - 5 years
Computer software 5 years
Revenue Recognition:
-------------------
Revenue consists primarily of consulting services, licensing fees, and
post-contract customer support. The company accounts for such revenue in
accordance with the American Institute of Certified Public Accountants' (AICPA)
Statement of Position 97-2, "Software Revenue Recognition," as follows:
License revenue Revenue from the license
of software is recognized after
shipment of the product and
fulfillment of acceptance terms,
provided no significant
obligations remain and collection
of the resulting receivable is
deemed probable.
Installation, consulting, and
education When services are provided.
Support contract Ratably over the life of
the contract from effective date.
Income taxes:
------------
Income taxes are provided for the tax effects of transactions reported in the
financial statements and consist of taxes currently due plus deferred taxes
related primarily to differences between the reporting of depreciation. The
deferred tax asset represents the future tax consequences of those differences,
which will be deductible when the assets are recovered or settled.
Advertising:
-----------
The Company expenses all advertising costs as incurred. Advertising expenses for
the years ended January 31, 2000 and 1999, are $35,964 and $60,174,
respectively.
New Accounting Pronouncements:
-----------------------------
On January 31, 1998, the Company adopted SFAS 130, "Reporting Comprehensive
Income," and restated prior years' financial statements to conform to the
reporting standard. SFAS 130 establishes standards for reporting and displaying
comprehensive income and its components in a full set of general-purpose
financial statements. Comprehensive income includes all changes in stockholders'
equity during a period except those resulting from investments by owners and
distributions to owners. The adoption of SFAS 130 resulted in revised and
additional disclosures but had no effect on the financial position, results of
operations, or liquidity of the Company.
-9-
<PAGE>
Note B
Uninsured Cash Balances
-----------------------
The Company from time to time maintains cash deposits in excess of federally
insured limits. At January 31, 2000 and 1999, the Company had approximately
$19,747 and $0, respectively, at risk.
Note C
Investments in Marketable Securities
------------------------------------
Cost and fair value of marketable securities available for sale are as follows:
Unrealized Fair
Cost Gains Value
-------------- -------------- ---------------
January 31, 2000 $ 302,966 $ 737,194 $ 1,040,160
============== ============== ==============
January 31, 1999 $ 276,344 $ 588,635 $ 864,979
============== ============== ==============
The unrealized gain on marketable securities, which is included as a separate
component of stockholders' equity in the accompanying balance sheets, increased
to $148,559 during 2000 from $95,557 at January 31, 1999. The income tax
expenses related to the unrealized gains on marketable securities are included
in the provision for income taxes within the statement of operations. The
amounts of income tax expense recognized in the financial statements related to
the gains on marketable securities are $56,066 and $36,033 for the years ended
January 31, 2000 and January 31, 1999, respectively.
Note D
Income Taxes
The provision for income taxes consists of:
2000 1999
------------- ---------
Current taxes
Federal $ 25,054 $ 0
State 6,263 0
-------------- --------------
31,317 0
-------------- --------------
Deferred income tax
Federal 69,178 25,160
State 12,208 4,439
-------------- --------------
81,386 29,599
-------------- --------------
Net provision for income taxes $ 112,703 $ 29,599
============== ==============
-10-
<PAGE>
The tax effects of temporary differences that give rise to significant portions
of the deferred tax asset and deferred tax liability at January 31, 2000 and
1999, are presented below:
2000 1999
----------- ----------
Current
Deferred tax asset:
Accrued vacation $ 948 $ 960
Net operating loss -- 33,811
----------- ----------
$ 948 $ 34,771
=========== ==========
Non-current
-----------
Deferred tax liability:
Property and equipment, due to $ 16,200 $ 24,703
differences in depreciation
Unrealized gains on marketable securities 278,217 222,151
----------- ----------
$ 294,417 $ 246,854
=========== ==========
Note E
Related Party Transactions-Capital Lease
The Company leases equipment under a capital lease expiring in 2002 with an
interest rate of 14% per annum. Assets and liabilities under capital leases are
recorded at the lower of the present value of the minimum lease payments or the
fair value of the asset. The assets are depreciated over their estimated useful
lives. Depreciation of assets under capital leases is included in depreciation
expenses.
The following is a summary of property and equipment held under capital leases:
2000 1999
----------- ----------
Property and equipment under capital leases $ 32,149 $ 32,149
Less: Accumulated depreciation (16,610) (10,181)
----------- ----------
$ 15,539 $ 21,968
=========== ==========
-11-
<PAGE>
Minimum future lease payments under capital leases are as follows:
January 31,
----------
2001 $ 7,711
2002 7,711
2003 13,037
-------------
28,459
Less amount representing interest 5,863
-------------
Present value of minimum lease payments 22,596
Current maturities of capital leases 4,851
-------------
Long-term capital leases less current maturity $ 17,745
=============
The Company also leases additional equipment from a related party on a
month-to-month basis. The amount of lease expenses incurred by the Company in
connection with the leases is $7,288 and $7,287 for years ending January 31,
2000 and 1999, respectively. Also, the Company incurred interest expenses from
capital leases with the related party. The amounts of interest expenses incurred
from the capital leases are $3,489 and $4,041 for the years ended January 31,
2000 and 1999, respectively.
Note F
Commitments and Contingencies
Compensated Absences:
--------------------
Employees of the Company are entitled to paid vacations depending on job
classification, length of service, and other factors. Effective January 1998,
employees were permitted to carry over five days of unused vacation into the
next benefit year. Accruals for compensated absences are included in accrued
expenses.
Usage Commitment:
----------------
The Company entered into a long-distance contract with a telephone provider
during February 1999. The contract states that IDC will pay a minimum of $2,000
per month for 24 months. If the Company should discontinue service before the
contract expires, they would be obligated to pay the remaining monthly payments
multiplied by the remaining life. The Company can discontinue the contract if
they subscribe to a new phone plan with the same provider, which has a specified
revenue commitment equal to or greater than the remaining revenue commitment
under the plan being discontinued.
Note G
Subsequent Events - Letter of Intent
Subsequent to year-end, the Company entered into discussions with a potential
buyer of the Company. As of April 14, 2000, the parties are negotiating the
terms of the potential sale of the Company.
-12-
<PAGE>
INTERCOASTAL DATA CORPORATION
FINANCIAL STATEMENTS
APRIL 30, 2000 AND 1999
<PAGE>
INTERCOASTAL DATA CORPORATION
TABLE OF CONTENTS
-----------------
PAGE
----
Accountants' report 1
Financial statements:
Balance sheets 2 - 3
Statements of income and comprehensive income 4
Statements of retained earnings 5
Statements of cash flows 6 - 7
Notes to financial statements 8 - 12
<PAGE>
ACCOUNTANTS' REPORT
To the Board of Directors and Stockholders
of Intercoastal Data Corporation
We have reviewed the accompanying balance sheets of INTERCOASTAL DATA
CORPORATION (a Georgia Corporation) as of April 30, 2000 and 1999, and the
related statements of income and comprehensive income, retained earnings, and
cash flows for the three months then ended, in accordance with Statements on
Standards for Accounting and Review Services issued by the American Institute of
Certified Public Accountants. All information included in these financial
statements is the representation of the management of INTERCOASTAL DATA
CORPORATION.
A review consists principally of inquiries of Company personnel and analytical
procedures applied to financial data. It is substantially less in scope than an
audit in accordance with generally accepted auditing standards, the objective of
which is the expression of an opinion regarding the financial statements taken
as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the accompanying financial statements in order for them to be in
conformity with generally accepted accounting principles.
/s/ Habif, Arogeti & Wynne, LLP
Atlanta, Georgia
July 25, 2000, except with respect to matters discussed in Note G, as to which
the date is August 3, 2000.
<PAGE>
INTERCOASTAL DATA CORPORATION
BALANCE SHEETS
APRIL 30,
ASSETS
2000 1999
----------- -----------
Current assets
--------------
Cash $ 319,248 $ 143,850
Investments in marketable securities 1,007,745 935,268
Accounts receivable 131,426 175,317
Prepaid expenses 400 400
----------- -----------
Total current assets 1,458,819 1,254,835
----------- -----------
Property, plant, and equipment, at cost
---------------------------------------
Land 43,549 43,549
Buildings 325,572 325,572
Furniture and equipment 378,160 350,570
Automobiles 42,013 42,013
Computer software 107,934 106,329
----------- -----------
897,228 868,033
Less accumulated depreciation (498,673) (452,375)
----------- -----------
398,555 415,658
----------- -----------
$ 1,857,374 $ 1,670,493
=========== ===========
See accountants' report and accompanying notes
-2-
<PAGE>
INTERCOASTAL DATA CORPORATION
BALANCE SHEETS
APRIL 30,
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
2000 1999
---------- ----------
<S> <C> <C>
Current liabilities
-------------------
Accounts payable $ 1,269 $ --
Accrued expenses 20,080 21,838
Deferred revenue 47,463 59,179
Obligations under capital lease, current portion - related party 4,966 4,371
Income taxes payable 39,248 1,613
Deferred tax liability 279,916 250,481
---------- ----------
Total current liabilities 392,942 337,482
---------- ----------
Long-term liabilities
---------------------
Obligations under capital lease,
net of current portion - related party 16,481 21,446
Deferred tax liability 14,918 23,119
---------- ----------
31,399 44,565
---------- ----------
Stockholders' equity
--------------------
Common stock; $.50 par value,
1,000,000 authorized, 43,700 issued and outstanding 21,850 21,850
Additional paid-in capital 4,178 4,178
Retained earnings 665,309 598,717
Accumulated other comprehensive income:
Unrealized gain on investments in marketable securities 741,696 663,701
---------- ----------
1,433,033 1,288,446
---------- ----------
$1,857,374 $1,670,493
========== ==========
</TABLE>
See accountants' report and accompanying notes
-3-
<PAGE>
INTERCOASTAL DATA CORPORATION
STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
FOR THE THREE MONTHS ENDED APRIL 30,
<TABLE>
<CAPTION>
2000 1999
--------- ---------
<S> <C> <C>
Sales $ 359,937 $ 396,074
----- --------- ---------
Operating expenses
------------------
Cost of service 123,160 115,756
Selling, general, and administrative expenses 234,393 221,657
--------- ---------
357,553 337,413
--------- ---------
Income from operations 2,384 58,661
--------- ---------
Other income (expenses)
-----------------------
Interest expense (778) (927)
Interest income 2,642 289
Dividend income 2,662 1,329
Gain on investments in marketable
securities 29,727 35,774
--------- ---------
34,253 36,465
--------- ---------
Income before taxes 36,637 95,126
Provision for income taxes 9,296 63,130
-------------------------- --------- ---------
Net income 27,341 31,996
Other comprehensive income
Unrealized gains on marketable equity securities:
Unrealized holding gains arising during the period 4,502 45,066
--------- ---------
Total comprehensive income $ 31,843 $ 77,062
========= =========
</TABLE>
See accountants' report and accompanying notes
-4-
<PAGE>
INTERCOASTAL DATA CORPORATION
STATEMENTS OF RETAINED EARNINGS
FOR THE THREE MONTHS ENDED APRIL 30,
2000 1999
-------------- --------------
Balance, February 1, $ 637,968 $ 566,721
Net income 27,341 31,996
-------------- --------------
Balance, April 30, $ 665,309 $ 598,717
============== ==============
See accountants' report and accompanying notes
-5-
<PAGE>
INTERCOASTAL DATA CORPORATION
STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED APRIL 30,
Increase (Decrease) In Cash
<TABLE>
<CAPTION>
2000 1999
--------- ---------
<S> <C> <C>
Cash flows from operating activities
------------------------------------
Net income $ 27,341 $ 31,996
--------- ---------
Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation 10,377 10,377
Amortization 1,841 1,842
Deferred income taxes 1,365 61,517
Gain on investments in marketable securities (29,727) (35,774)
Changes in assets and liabilities
Accounts receivable 30,923 (48,806)
Prepaid expenses 2,621 3,010
Accounts payable 479 (4,022)
Accrued expenses (1,631) 742
Deferred revenue (6,123) (218)
Income taxes payable 7,931 1,613
--------- ---------
Total adjustments 18,056 (9,719)
--------- ---------
Net cash provided by operating activities 45,397 22,277
--------- ---------
Cash flows from investing activities
------------------------------------
Acquisition of property, plant, and equipment (23,780) --
Proceeds from sale of marketable securities 70,294 40,551
Investments in marketable securities (3,650) --
--------- ---------
Net cash provided by investing activities 42,864 40,551
--------- ---------
Cash flows from financing activities
------------------------------------
Principal payments on obligations under capital lease (1,149) (1,001)
--------- ---------
Net increase in cash 87,112 61,827
Cash, beginning of period 232,136 82,023
--------- ---------
Cash, end of period $ 319,248 $ 143,850
========= =========
</TABLE>
See accountants' report and accompanying notes
-6-
<PAGE>
Increase (Decrease) In Cash
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
-------------------------------------------------
2000 1999
-------------- -----------
Cash paid during the periods for
Interest $ 778 $ 927
Income taxes $ 0 $ 0
See accountants' report and accompanying notes
-7-
<PAGE>
INTERCOASTAL DATA CORPORATION
NOTES TO FINANCIAL STATEMENTS
APRIL 30, 2000 AND 1999
Note A
Summary of Significant Accounting Policies
Nature of Operations:
--------------------
INTERCOASTAL DATA CORPORATION (IDC), a Georgia corporation incorporated in 1972,
licenses EDI software and provides EDI services to users throughout the United
States.
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.
Estimates are used for, but not limited to, the accounting for doubtful
accounts, depreciation, deferred revenue, and accrued expenses. Actual results
could differ from those estimates.
Investments in Marketable Securities:
------------------------------------
The Company's marketable equity securities consist of equity securities that
have a readily determinable fair market value. Management determines the
appropriate classification of its investments at the time of purchase and
re-evaluates such determinations at each balance sheet date.
Since the Company does not intend to sell these securities in the near term,
they are classified as "available for sale" and, accordingly, are carried at
fair value with unrealized gains and losses reported as a separate component
within the stockholders' equity section of the balance sheets. Realized gains
and losses on all marketable securities are determined by specific
identification and are charged or credited to current earnings. The Company
accounts for any sales of investments on a first-in, first-out basis.
Accounts Receivable:
-------------------
The Company considers all accounts receivable to be fully collectible;
therefore, no allowance for doubtful accounts has been provided. The Company
does not require collateral for its accounts receivable. The amount of
accounting loss due to credit risk the Company would incur if the parties to the
accounts receivable failed to perform according to the terms of the agreements
would be the balance of the accounts receivable.
Property, Plant, and Equipment:
------------------------------
Property, plant, and equipment are carried at cost. Expenditures for maintenance
and repairs are expensed currently while renewals and betterments that
materially extend the life of an asset are capitalized. The cost of assets sold,
retired, or otherwise disposed of and the related allowance for depreciation are
eliminated from the accounts, and any resulting gain or loss is included in
operations.
-8-
<PAGE>
INTERCOASTAL DATA CORPORATION
NOTES TO FINANCIAL STATEMENTS
APRIL 30, 2000 AND 1999
Depreciation is provided using both straight-line and accelerated methods over
the estimated useful lives of the assets, which are as follows:
Buildings 40 years
Furniture and equipment 5 - 7 years
Automobiles 4 - 5 years
Computer software 5 years
Revenue Recognition:
-------------------
Revenue consists primarily of consulting services, licensing fees, and
post-contract customer support. The company accounts for such revenue in
accordance with the American Institute of Certified Public Accountants' (AICPA)
Statement of Position 97-2, "Software Revenue Recognition," as follows:
License revenue Revenue from the license of software
is recognized after shipment of the
product and fulfillment of
acceptance terms, provided no
significant obligations remain and
collection of the resulting
receivable is deemed probable.
Installation, consulting, and
education When services are provided.
Support contract Ratably over the life of the
contract from effective date.
Income taxes:
------------
Income taxes are provided for the tax effects of transactions reported in the
financial statements and consist of taxes currently due plus deferred taxes
relating primarily to the unrealized gains on marketable equity securities.
Advertising:
-----------
The Company expenses all advertising costs as incurred. Advertising expenses for
the three months ended April 30, 2000 and 1999, are $10,713 and $10,744,
respectively.
New Accounting Pronouncements:
-----------------------------
On January 31, 1998, the Company adopted SFAS 130, "Reporting Comprehensive
Income," and restated prior years' financial statements to conform to the
reporting standard. SFAS 130 establishes standards for reporting and displaying
comprehensive income and its components in a full set of general-purpose
financial statements. Comprehensive income includes all changes in stockholders'
equity during a period except those resulting from investments by owners and
distributions to owners. The adoption of SFAS 130 resulted in revised and
additional disclosures but had no effect on the financial position, results of
operations, or liquidity of the Company.
-9-
<PAGE>
INTERCOASTAL DATA CORPORATION
NOTES TO FINANCIAL STATEMENTS
APRIL 30, 2000 AND 1999
Note B
Uninsured Cash Balances
The Company from time to time maintains cash deposits in excess of federally
insured limits. At April 30, 2000 and 1999, the Company had approximately
$163,448 and $0, respectively, at risk.
Note C
Investments in Marketable Securities
Cost and fair value of marketable securities available for sale are as follows:
<TABLE>
<CAPTION>
Unrealized Fair
Cost Gains Value
----------- ------------- ------------
<S> <C> <C> <C>
April 30, 2000 $ 266,049 $ 741,696 $ 1,007,745
================== ================= =================
April 30, 1999 $ 271,567 $ 663,701 $ 935,268
================== ================= =================
</TABLE>
The unrealized gain on marketable securities, which is included as a separate
component of stockholders' equity in the accompanying balance sheets, increased
$4,502 during the 3 months ended April 30, 2000 and increased $45,066 during the
3 months ended April 30, 1999. The income tax expenses related to the unrealized
gains on marketable securities are included in the provision for income taxes
within the statement of operations. The amounts of income tax expense recognized
in the financial statements related to the unrealized gains on marketable
securities are $1,699 and $28,330 for the three months ended April 30, 2000 and
1999, respectively.
Note D
Income Taxes
The provision for income taxes consists of:
2000 1999
------------- -------------
Current taxes
Federal $ 5,665 $ 1,152
State 2,266 461
------------- -------------
7,931 1,613
------------- -------------
Deferred income tax
Federal 1,161 52,289
State 204 9,228
------------- -------------
1,365 61,517
------------- -------------
Net provision for income taxes $ 9,296 $ 63,130
============= =============
-10-
<PAGE>
INTERCOASTAL DATA CORPORATION
NOTES TO FINANCIAL STATEMENTS
APRIL 30, 2000 AND 1999
The tax effects of temporary differences that give rise to the deferred tax
liability at April 30, 2000 and 1999, are presented below:
<TABLE>
<CAPTION>
2000 1999
--------------- -----------------
<S> <C> <C>
Current
Deferred tax liability:
Unrealized gains on marketable securities $ 279,916 $ 250,481
================= =================
Non-current
Deferred tax liability:
Property and equipment, due to $ 14,918 $ 23,119
================= =================
differences in depreciation
</TABLE>
Note E
Related Party Transactions - Capital Lease
------------------------------------------
The Company leases equipment under a capital lease expiring in 2002 with an
interest rate of 14% per annum. Assets and liabilities under capital leases are
recorded at the lower of the present value of the minimum lease payments or the
fair value of the asset. The assets are depreciated over their estimated useful
lives. Depreciation of assets under capital leases is included in depreciation
expenses.
The following is a summary of property and equipment held under capital leases:
<TABLE>
<CAPTION>
2000 1999
--------------- ----------
<S> <C> <C>
Property and equipment under capital leases $ 32,149 $ 32,149
Less: Accumulated depreciation (18,218) (11,788)
--------------- ---------------
$ 13,931 $ 20,361
=============== ===============
Minimum future lease payments under capital leases
are as follows:
April 30,
--------
2001 $ 7,069
2002 7,711
2003 11,754
---------------
26,534
Less amount representing interest 5,087
---------------
Present value of minimum lease payments 21,447
Current maturities of capital leases 4,966
---------------
Long-term capital leases less current maturity $ 16,481
===============
</TABLE>
-11-
<PAGE>
INTERCOASTAL DATA CORPORATION
NOTES TO FINANCIAL STATEMENTS
APRIL 30, 2000 AND 1999
The Company also leases additional equipment from a related party on a
month-to-month basis. The amount of lease expenses incurred by the Company in
connection with the leases is $1,823 and $1,822 for the three months ending
April 30, 2000 and 1999, respectively. Also, the Company incurred interest
expenses from capital leases with the related party. The amounts of interest
expenses incurred from the capital leases are $778 and $927 for the three months
ended April 30, 2000 and 1999, respectively.
Note F
Commitments and Contingencies
Usage Commitment:
----------------
The Company entered into a long-distance contract with a telephone provider
during February 1999. The contract states that IDC will pay a minimum of $2,000
per month for 24 months. If the Company should discontinue service before the
contract expires, they would be obligated to pay the remaining monthly payments
multiplied by the remaining life. The Company can discontinue the contract if
they subscribe to a new phone plan with the same provider, which has a specified
revenue commitment equal to or greater than the remaining revenue commitment
under the plan being discontinued.
Note G
Subsequent Events - Merger Agreement
On August 2, 2000 the stockholders of the Company entered into a definitive
merger agreement with Internet Commerce Corporation (ICC) (Nasdaq: ICCSA); the
merger closed on August 3, 2000 and the Company merged with and into ICC. All
issued and outstanding shares of the Company were surrendered by the
stockholders in consideration for $2 million in shares of ICC common stock and
additional shares equal to the value of the marketable equity securities valued
at the average of the average high and low trading prices for the ten trading
days ending four days prior to the closing date for a total of 190,861 shares of
ICC common stock. The Company's building was distributed to a third company
prior to the closing of the merger. The third company is owned by the Company's
stockholders. The stockholders of the Company have the right to receive
additional shares of ICC common stock equal to the difference between the number
of shares calculated at the closing date and the number of shares of ICC common
stock calculated using the value of ICC common stock on the date the
registration statement becomes effective, not to exceed 125% of the total number
of shares of ICC common stock calculated at the closing date or 238,576 shares.
Additionally, the merger agreement includes an employment agreement for the
president of the Company terminating August 1, 2002. The employment agreement
includes an annual salary in the amount of $125,000 plus an annual bonus that
ranges from 10%-25% of the president's annual base salary. Also, the president
is provided with the option under the definitive merger agreement to purchase
10,000 shares of ICC stock with the purchase price determined by the trading
price of the ICC common stock at the effective date of the employment agreement
or April 2, 2000.
It is the opinion of management that this transaction qualifies as a tax-free
reorganization within the meaning of section 368(a) of the Internal Revenue Code
of 1986.
-12-
<PAGE>
UNAUDITED PRO FORMA COMBINED
CONDENSED FINANCIAL STATEMENTS
The following unaudited pro forma combined condensed financial information
reflects the acquisition of Intercoastal Data Corporation, a Georgia corporation
("IDC"), by Internet Commerce Corporation, a Delaware corporation ("ICC") and
assumes the completion of the previously announced acquisition of Research
Triangle Commerce, Inc., a North Carollina corporation ("RTCI"), by ICC as
follows: The combined condensed pro forma balance sheet combines ICC and RTCI
and IDC as of April 30, 2000, as if each acquisition had occurred on April 30,
2000. The pro forma statements of operations combine ICC's and RTCI's and IDC's
historical results of operations for the twelve months ended July 31, 1999 and
the nine months ended April 30, 2000, as if each acquisition had occurred on
August 1, 1998.
The pro forma information is presented for illustrative purposes only and
is not necessarily indicative of the operating results or financial position
that would have occurred if the acquisitions had occurred as of the date or
during the periods presented nor is it necessarily indicative of future
operating results or financial positions. These pro forma financial statements
are based on, and should be read in conjunction with, the historical financial
statements, and the related notes thereto, of IDC filed herewith and of ICC
previously filed with the Securities and Exchange Commission and the historical
financial statements of RTCI beginning on page F-1 of ICC's preliminary proxy
statement dated August 11, 2000 relating to its proposed acquisition of RTCI.
The acquisitions of RTCI and IDC will be accounted for using the
purchase method of accounting. The total purchase cost will be allocated to the
assets acquired and liabilities assumed based on their respective fair values.
The allocation of the total purchase cost reflected in the unaudited pro forma
combined financial information is preliminary. The actual purchase accounting
adjustment to reflect the fair values of the assets acquired and liabilities
assumed will be based upon appraisals that are currently in process. A
preliminary allocation of the purchase cost has been made to major categories of
assets and liabilities in the accompanying unaudited pro forma combined
condensed financial information based on our estimates. Accordingly, the
adjustments that have been included in the unaudited pro forma combined
condensed financial information may change based upon the final allocation of
the total purchase cost of the acquisitions of RTCI and IDC. The actual
allocation of the purchase cost and the resulting effect on income may differ
from the unaudited pro forma amounts included in this proxy statement. However,
based on current information, management does not expect the final allocation of
the purchase price to differ materially from that used in the accompanying
statement of operations.
<PAGE>
<TABLE>
<CAPTION>
INTERNET COMMERCE CORPORATION
UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET
April 30, 2000
(in thousands)
Historical Historical Historical Pro Forma Pro Forma
ICC IDC RTCI Adjustments Combined
---------- ---------- ---------- ----------- ---------
ASSETS
Current Assets:
<S> <C> <C> <C> <C> <C>
Cash and cash equivalents $ 21,921 $ 319 $ 15 $ 1 (E) $ 22,256
Marketable securities 1,008 1,008
Accounts receivable, net 349 131 1,263 1,743
Other current assets 204 1 359 564
-------- -------- -------- --------
Total current assets 22,474 1,459 1,637 1 25,571
Property and equipment, net 924 386 1,128 (262) (F) 2,176
Intangible assets, net 893 12 80 46,001 (A),(B),(C) 46,986
Other assets 535 43 578
-------- -------- -------- -------- --------
$ 24,826 $ 1,857 $ 2,888 $ 45,740 $ 75,311
======== ======== ======== ======== ========
LIABILITIES AND
STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 255 $ 1 $ 444 $ 700
Current portion of long-term debt 330 5 117 452
Convertible debenture 2,007 $ (2,007) (E)
Deferred Taxes 280 280
Other current liabilities 960 107 1,106 1,485 (A),(B) 3,658
-------- -------- -------- -------- --------
1,545 393 3,674 (522) 5,090
Long term debt, net of current portion 288 16 282 586
Deferred taxes 15 3,998 (G) 4,013
-------- -------- -------- -------- --------
Total liabilities 1,833 424 3,956 3,476 9,689
Redeemable preferred stock 3,438 (3,438) (H)
Stockholders' Equity:
Preferred stock
Common stock 63 22 3 (A),(B),(D 88
Additional paid-in capital 56,841 4 42,600 (A),(B),(D),(E) 99,445
Accumulated other comprehensive
income 742 (742) (D)
Accumulated earnings (deficit) (33,911) 665 (4,506) 3,841 (D) (33,911)
-------- -------- -------- -------- -------
Total stockholders' equity 22,993 1,433 (4,506) 45,702 65,622
-------- -------- -------- -------- --------
$ 24,826 $ 1,857 $ 2,888 $ 45,740 $ 75,311
======== ======== ======== ======== ========
See notes to unaudited pro forma combined condensed financial statements
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
INTERNET COMMERCE CORPORATION
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
Year ended July 31, 1999
(in thousands, except per share amounts)
Historical Historical Historical Pro Forma Pro Forma
ICC IDC RTCI Adjustments Combined
---------- ---------- ---------- ----------- ---------
Revenues:
<S> <C> <C> <C> <C> <C>
Services $ 105 $ 1,135 $ 5,499 $ (23) (I) $ 6,716
Software sales 299 159 458
-------- -------- -------- -------- --------
Total revenues 105 1,434 5,658 (23) 7,174
Expenses:
Cost of services 452 136 4,018 (23) (I) 4,583
Cost of software 103 103
Research and development 517 367 884
Selling and marketing 420 266 686
General and administrative 3,548 595 2,353 5,478 (C) 11,974
Non-cash charges in connection with
options, compensation and services 3,266 3,266
Write down of assets 33 33
-------- -------- -------- -------- --------
Total costs and expenses 8,236 1,364 6,474 5,455 21,529
-------- -------- -------- -------- --------
Income (loss) from continuing operations (8,131) 70 (816) (5,478) (14,355)
Interest expense, net (1,490) (8) (1,498)
-------- -------- -------- -------- --------
Income (loss) from continuing operations
before income taxes (9,621) 70 (824) (5,478) (15,853)
Income taxes (benefit) 23 8 (751) (J) (720)
-------- -------- -------- -------- --------
Net income (loss) $ (9,621) $ 47 $ (832) $ (4,727) $(15,133)
======== ======== ======== ======== ========
Dividends attributable to preferred stock (191) (252) 252 (H) (191)
Dividends attributable to preferred stock
resulting from discount for beneficial
conversion feature (1,222) (1,222)
-------- -------- -------- -------- --------
Loss attributable to common shareholders $(11,034) $ 47 $ (1,084) $ (4,475) $(16,546)
======== ======== ======== ======== ========
Basic and diluted loss per common share $ (7.62) $ (4.20)
======== ========
Weighted average number of common
shares outstanding - basic and diluted 1,447 3,939
======== ========
See notes to unaudited pro forma combined condensed financial statements
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
INTERNET COMMERCE CORPORATION
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
Nine months ended April 30, 2000
(in thousands, except per share amounts)
Historical Historical Historical Pro Forma Pro Forma
ICC IDC RTCI Adjustments Combined
---------- ---------- ---------- ----------- ----------
Revenues:
<S> <C> <C> <C> <C> <C>
Services $ 769 $ 979 $ 5,130 $ (21) (I) $ 6,857
Software sales 168 716 884
----------- --------- ---------- ------- ---------
Total revenues 769 1,147 5,846 (21) 7,741
Expenses:
Cost of services 1,584 302 4,420 (21) (I) 6,285
Cost of software 9 465 474
Research and development 507 507
Selling and marketing 2,267 210 2,477
General and administrative 3,291 544 3,850 4,109 (C) 11,794
Non cash charges in connection with
options, compensation and services 3,311 3,311
------------ ----------- ---------- ---------- ----------
Total costs and expenses 10,960 1,065 8,735 4,088 24,848
------------ ----------- ---------- ---------- ----------
Income (loss) from continuing (10,191) 82 (2,889) (4,109) (17,107)
operations
Interest income (expense), net 373 26 (293) 106
------------ ----------- ---------- ----------- ----------
Income (loss) from continuing
operations
before income taxes (9,818) 108 (3,182) (4,109) (17,001)
Income taxes (benefit) 91 (33) (563) (J) (505)
------------ ----------- ---------- ---------- ----------
Net income (loss) $ (9,818) $ 17 $ (3,149) $(3,546) $ (16,496)
============ =========== ========== ========== ==========
Dividends attributable to preferred stock (600) 600 (H)
------------ ----------- ---------- ---------- ----------
Loss attributable to common shareholders $ (9,818) $ 17 $ (3,749) $(2,946) $ (16,496)
============ =========== ========== ========= ==========
Basic and diluted loss per common share $ (2.68) $ (2.68)
============ ==========
Weighted average number of common
shares outstanding - basic and diluted 3,670 6,162
============ ==========
See notes to unaudited pro forma combined condensed financial statements
</TABLE>
<PAGE>
Notes to Unaudited Pro Forma Combined Condensed Financial Statements
1. Basis of Presentation
The unaudited pro forma combined condensed balance sheet of ICC at
April 30, 2000 has been prepared as if the acquisitions of RTCI and IDC had been
consummated at April 30, 2000. The unaudited pro forma combined condensed
statements of operations for the year ended July 31, 1999 and the nine-month
period ended April 30, 2000 have been prepared as if the acquisitions of RTCI
and IDC had been consummated August 1, 1998.
In management's opinion, all material adjustments necessary to
reflect the effects of the acquisitions have been made and are factually
supportable. The unaudited pro forma financial statements are not necessarily
indicative of the financial position of the consolidated company at April 30,
2000, or what the actual results of operation of the consolidated company would
have been assuming the acquisition had been completed as of August 1, 1998, nor
are they indicative of the financial position or results of operations for
future periods. The pro forma financial statements should be read in conjunction
with the historical financial statements and notes thereto of ICC and IDC
incorporated by reference and the historical financial statements for RTCI
included this proxy statement beginning on page F-1.
2. Pro Forma Adjustments and Assumptions
(A) The purchase price for ICC's pending acquisition of IDC was
determined by multiplying 194,731 shares of ICC's Class A Common Stock issued to
IDC shareholders by the fair market value of $16.78 per share. The number of
shares was determined by dividing $2,000,000 plus the IDC portfolio market value
of $1,267,220, as calculated based on the formula set forth in the definitive
merger agreement, divided by $16.78, the value of the ICC Class A Common Stock
on the Effective Date (as defined in the definitive merger agreement) (such
value as determined by taking the average of the average high and low trading
prices for ICC common stock for the 10 trading days ending four days prior to
April 30, 2000, the "closing date"). The estimated direct transaction costs to
be incurred by the combined company include fees paid for attorneys,
accountants, due diligence and other related charges. The purchase price for the
completion of the acquisition is summarized below (in thousands):
<PAGE>
Notes to Unaudited Pro Forma Combined Condensed Financial Statements
Purchase Price:
Acquisition cost $ 3,267
Estimated transaction costs 125
--------
Total purchase price $ 3,392
========
Fair value of net assets acquired:
Fixed assets $ 124
Other assets 1,471
Liabilities assumed (415)
--------
Fair value of net assets acquired 1,180
--------
Cost in excess of net assets acquired $ 2,212
========
Payment of Purchase Price:
Common stock and additional paid-in capital $ 3,267
Other current liabilities - transaction costs 125
--------
$ 3,392
========
(B) The purchase price for ICC's pending acquisition of RTCI was
determined by the following formula:
ICC shall pay aggregate consideration of $42,000,000 to the holders
of RTCI common stock and RTCI series A preferred stock and option holders,
consisting of (i) the cash at closing and (ii) ICC shares equal to the number of
shares obtained by dividing $42,000,000 minus the cash at closing ($16,167 as of
April 30, 2000) by the market price ($15.89) as determined based on the formula
in the definitive merger agreement (the average of the closing prices per share
of ICC Class A Common Stock for the ten trading days ending three trading days
prior to April 30, 2000). A total of 2,641,531 shares will be reduced by 305,271
shares reserved for assumption of the RTCI stock option plan and 38,812 shares
reserved for assumption of RTCI warrants, resulting in 2,279,448 shares issued
at consummation of the acquisition. The estimated direct transaction costs to be
incurred by the combined company include fees for investment bankers, attorneys,
accountants, financial printing, due diligence and other related charges. The
purchase price for the completion of the acquisition is summarized below (in
thousands):
-44-
<PAGE>
Notes to Unaudited Pro Forma Combined Condensed Financial Statements
Purchase Price:
Acquisition cost (net of cash of $16
at April 30, 2000) $ 39,361
Estimated transaction costs 1,360
---------
Total purchase price $ 40,721
=========
Fair value of net assets acquired:
Fixed assets $ 1,128
Other assets 1,761
Identifiable intangible 9,996
Liabilities assumed (1,949)
---------
Fair value of net assets acquired 10,936
Excess of purchase price over fair value of
net assets acquired
32,408
Deferred tax effect of purchase accounting 3,998
---------
Cost in excess of net assets acquired $ 36,406
=========
Payment of Purchase Price:
Common stock and additional paid-in capital $ 36,515
Fair value of options and warrants assumed 2,846
Other current liabilities - transaction costs 1,360
---------
$ 40,721
=========
(C) The pro forma financial statements assume that the goodwill and the
intangible assets related to the RTCI and IDC acquisitions will be amortized on
a straight-line basis over the number of years indicated in the table below:
IDC RTCI
-------- --------
Goodwill 10 10
Workforce 5
Mapping technology 5
Customer list 10
Amortization of intangibles will be included in the general and administrative
expenses in the combined company's statement of operations. These estimated
useful lives are based on valuations currently in process.
(D) Elimination of IDC and RTCI shareholders' equity amounts.
(E) Immediately prior to the RTCI acquisition, the convertible debenture
and certain warrants will be converted into shares of RTCI common stock.
-45-
<PAGE>
Notes to Unaudited Pro Forma Combined Condensed Financial Statements
(F) Immediately prior to the IDC acquisition, the IDC building will be
distributed to another company at net book value to those shareholders who were
shareholders of IDC prior to the acquisition of IDC by ICC.
(G) Deferred tax liability from acquisition of intangible assets from
RTCI.
(H) Elimination of accretion and conversion of mandatorily redeemable
preferred stock.
(I) Elimination of revenue transactions between ICC and RTCI and between
ICC and IDC.
(J) Tax benefit relating to identifiable intangible assets.
3. Shares Issued for RTCI Acquisition
The transaction between ICC and RTCI is structured so that a minimum
of 1,800,000 shares of ICC's Class A Common Stock and a maximum of 3,315,890
shares of ICC's Class A Common Stock are issuable in connection with the RTCI
merger based upon the market price of ICC's Class A Common Stock and the cash on
hand of RTCI at closing.
-46-
