UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported)
OCTOBER 6, 1997 (JULY 22, 1997)
TELSCAPE INTERNATIONAL, INC.
(Exact name of registrant as specified in its Charter)
TEXAS 0-24622 75-2433637
(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
4635 SOUTHWEST FREEWAY, SUITE 800, HOUSTON, TEXAS 77027
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code (713)968-0968
_________________________________________________
(Former name of former address, if changed since last report.
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As indicated in the Registrant's Form 8-K dated August 5, 1997, the
financial statements and pro forma financial information required to be filed
therewith were unavailable at the time of filing. Such financial statements and
pro forma financial information are now available. Accordingly, Item 7 of the
Form 8-K dated August 5, 1997 is hereby amended to read as follows:
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(A) FINANCIAL STATEMENTS OF BUSINESS ACQUIRED.
The following audited financial statements of Integracion de Redes, S.A.
de C.V. are attached hereto and made a part hereof:
(i) Auditor's Report;
(ii) Balance Sheets;
(III) Statements of Income;
(IV) Statements of Stockholders' Equity;
(V) Statements of Changes in Financial Position; and
(VI) Notes to the Financial Statements.
(B) PRO FORMA FINANCIAL INFORMATION.
The following unaudited pro forma financial information of Telscape
International, Inc. are attached hereto and made a part hereof:
(i) Unaudited Pro Forma Consolidated Balance Sheet - June 30, 1997;
(ii) Unaudited Pro Forma Consolidated Statement of Operations -
Six Months Ended June 30, 1997;
(III) Unaudited Pro Forma Consolidated Statement of Operations -
Year Ended December 31, 1996;
(IV) Notes to the Unaudited Pro Forma Consolidated Financial
Statements.
(C) EXHIBITS.
The following exhibits are incorporated herein by reference from the
Registrant's Form 8-K dated August 5, 1997:
10.1 Form of Promissory Note dated July 1, 1997, between Telereunion and
Jose Luis Apan Wong, Raul de la Parra Zavala and Alejandro Apan Wong
10.2 Form of Convertible Promissory Note dated July 1, 1997, between the
Registrant and Telereunion and Jose Luis Apan Wong, Raul de la Parra
Zavala and Alejandro Apan Wong
10.3 Form of Common Stock Warrant dated July 1, 1997, between the
Registrant and Jose Luis Apan Wong, Raul de la Parra Zavala and
Alejandro Apan Wong
10.4 Stock Purchase Agreement dated July 1, 1997, by and among the
Registrant, Telscape USA, Telereunion and Jose Luis Apan Wong, Raul
de la Parra Zavala and Alejandro Apan Wong
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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 hereto duly authorized.
TELSCAPE INTERNATIONAL, INC.
(Registrant)
October 6, 1997 /S/ TODD M. BINET
Todd M. Binet
Executive Vice President and
Chief Financial Officer
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UNAUDITED PRO FORMA FINANCIAL STATEMENTS
On July 22, 1997, Telscape International, Inc. (the "Company"), through
two wholly-owned subsidiaries, acquired all of the outstanding shares of
Integracion de Redes, S.A. de C.V. ("Integracion") and Lan and Wan, S.A. de
C.V. ("Lan") (collectively, hereinafter "Integracion"), both Mexican
corporations based in Mexico City. Integracion distributes data and network
integration equipment in Mexico and represents such manufacturers as
Northern Telecom, 3Com, and Cisco and also provides the value-added service
of systems integration. The acquisition is effective July 1, 1997. Under the
terms of the acquisition, the Company paid the following: i) the sum of
$130,000 in cash, ii) an aggregate of $2,201,000 in non-interest bearing
promissory notes maturing January 1, 2001 ("Promissory Notes"), iii) an
aggregate of $999,000 in non-interest bearing convertible notes
("Convertible Notes") maturing on September 1, 1999, which are convertible
into 333,000 shares of common stock ("Common Stock") of the Company,
iv) warrants for the purchase of up to 100,000 shares of Common Stock based
on Integracion meeting certain performance requirements ("Warrants") and
v) a covenant by the Company to pay $280,000 in the event that Integracion
meets certain performance requirements over the cumulative periods beginning
January 1, 1997 and ending December 31, 2000 ("Additional Payment").
In connection with this acquisition, the Company entered into customary
employment and non-compete agreements with certain employees of Integracion.
The consideration paid by the Company for Integracion has been determined by
negotiations between the parties. The $130,000 paid at closing was funded out
of working capital. The acquisition will be accounted for under the purchase
method of accounting for financial reporting purposes.
The accompanying unaudited pro forma consolidated balance sheet at
June 30, 1997 was prepared by combining the unaudited balance sheets of the
Company and Integracion as of June 30, 1997 and reflects the acquisition of
Integracion as if such acquisition had occurred on June 30, 1997. The
accompanying unaudited pro forma statement of operations for the six months
ended June 30, 1997 and the year ended December 31, 1996 present the
financial position and results of the Company's operations as if the
acquisition of Integracion had occurred at the beginning of each of the
respective periods.
The accompanying unaudited pro forma consolidated financial statements
have been prepared based upon certain assumptions and include adjustments as
detailed in the notes to the unaudited pro forma consolidated financial
statements. The estimated fair market values reflected in the unaudited pro
forma consolidated financial statements are based on preliminary estimates
and assumptions and are subject to revision as more information becomes
available. In management's opinion, the preliminary allocation reflected
herein is not expected to be materially different from the final allocation.
The following unaudited pro forma consolidated financial statements
should be read in conjunction with the consolidated financial statements of
the Company and the notes related thereto as included in the Company's Form
10-QSB and Form 10-KSB as of June 30, 1997 and December 31, 1996,
respectively. Such pro forma information is based on historical data with
respect to the Company and Integracion. The pro forma is not necessarily
indicative of the results that might have occurred had such transactions
actually taken place at the beginning of the period specified and is not
intended to be a projection of future results. The pro forma information
presented herein is provided to comply with the requirements of the
Securities and Exchange Commission. The pro forma information does not
reflect any adjustments to reflect the manner in which the acquired entity
is being or will be operated under the control of the Company and,
therefore, does not reflect any adjustments to profitability, either
negative or positive, which may have resulted from the Company managing
Integracion for the periods presented.
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TELSCAPE INTERNATIONAL, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
AS OF JUNE 30, 1997
<TABLE>
<CAPTION>
PRO FORMA AS
INTEGRACION PRO FORMA ADJUSTED FOR
TELSCAPE DE REDES ADJUSTMENTS NOTE THE ACQUISITION
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 3,179,684 $ 307,038 $ (130,000) 3 $ 3,356,722
Accounts receivable 1,946,396 1,995,792 - 3,942,188
Inventories 1,708,689 430,149 - 2,138,838
Other current assets 651,161 50,347 - 701,508
7,485,930 2,783,326 (130,000) 10,139,256
Fixed assets, net 1,732,959 114,275 - 1,847,234
Goodwill, net 3,063,367 - 1,654,450 3 4,717,817
Other assets 615,816 - - 615,816
$12,898,072 $ 2,897,601 $ 1,524,450 $17,320,123
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued
liabilities $ 5,478,138 $ 1,685,881 $ 57,750 3 $ 7,221,769
Current maturities of long-term
debt 100,000 - 286,020 3 386,020
Current portion of capital lease
obligations 100,460 - - 100,460
Other liabilities 348,220 123,019 - 471,239
6,026,818 1,808,900 343,770 8,179,488
Long-term debt 200,000 - 2,269,381 3 2,469,381
Long-term capital lease obligations 213,026 - - 213,026
Minority interests 750,493 - - 750,493
Shareholders' equity 5,707,735 1,088,701 (1,088,701) 3 5,707,735
$12,898,072 $ 2,897,601 $ 1,524,450 $17,320,123
</TABLE>
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TELSCAPE INTERNATIONAL, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1997
<TABLE>
<CAPTION>
PRO FORMA AS
INTEGRACION PRO FORMA ADJUSTED FOR
TELSCAPE DE REDES ADJUSTMENTS NOTE 4 THE ACQUISITION
<S> <C> <C> <C> <C> <C>
Revenues $9,941,301 $ 4,646,117 $ - $ 14,587,418
Cost of revenues 5,993,862 3,381,618 - 9,375,480
Gross profit 3,947,439 1,264,499 - 5,211,938
Selling, general and
administrative 3,637,609 545,720 - 4,183,329
Operating income 309,830 718,779 - 1,028,609
Other income (expense)
Interest income 281 - - 281
Interest expense - - (136,151) a (136,151)
Amortization of goodwill - - (55,148) b (55,148)
Foreign exchange gain 27,192 16,695 - 43,887
Other (293,968) 33,909 - (260,059)
Total other income
(expense), net (266,495) 50,604 (191,299) (407,190)
Income before tax 43,335 769,383 (191,299) 621,419
Income tax benefit (expense) 166,657 (290,187) 13,008 c (110,522)
Minority interest 3,905 - - 3,905
Net income (loss) $ 213,897 $ 479,196 $ (178,291) $ 514,802
Earnings Per Share d $0.13
Weighted average common and
common equivalent shares outstanding 3,998,660
</TABLE>
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TELSCAPE INTERNATIONAL, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
PRO FORMA AS
HISTORICAL PRO FORMA PRO FORMA NOTE INTEGRACION PRO FORMA NOTE ADJUSTED FOR
TELSCAPE TELEREUNION ADJUSTMENTS 2 TELSCAPE DE REDES ADJUSTMENTS 4 THE ACQUISITION
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues $ 1,784,474 $6,208,429 $ - $ 7,992,903 $3,561,388 $ - $ 11,554,291
Cost of revenues 843,667 3,801,188 - 4,644,855 2,397,494 - 7,042,349
Gross profit 940,807 2,407,241 - 3,348,048 1,163,894 - 4,511,942
Selling, general and
administrative 2,832,570 2,138,313 76,794 a 5,047,677 745,973 - 5,793,650
Operating income (loss) (1,891,763) 268,928 (76,794) (1,699,629) 417,921 - (1,281,708)
Other income (expense)
Interest income 137,397 7,843 - 145,240 - - 145,240
Interest expense (25,578) (150,832) - (176,410) (19,979) (258,323) a (454,712)
Amortization of goodwill - - (189,453) b (189,453) - (110,296) b (299,749)
Foreign exchange gain (loss) (27,742) 643 - (27,099) - - (27,099)
Other expense (61,544) 162,337 - 100,793 (3,043) - 97,750
Total other income, net 22,533 19,991 (189,453) (146,929) (23,022) (368,619) (538,570)
Income (loss) before tax (1,869,230) 288,919 (266,247) (1,846,558) 394,899 (368,619) (1,820,278)
Income tax benefit (expense) (30,656) (25,969) - (56,625) (38,493) - (95,118)
Minority interest - - (7,889) c (7,889) - - (7,889)
Net Income (loss) $(1,899,886) $ 262,950 $ (274,136) $(1,911,072) $ 356,406 $ (368,619) $ (1,923,285)
Earnings (loss) per share $(0.61)
Weighted average common and
common equivalent shares outstanding 3,161,238
</TABLE>
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TELSCAPE INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO THE UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The unaudited pro forma consolidated statement of operations for the
year ended December 31, 1996 was prepared by combining the following:
- the unaudited pro forma consolidated statement of operations of the
Company, including two acquisitions completed during the fiscal year
ended December 31, 1996 ("Note 2"),
- the audited consolidated statement of operations of Integracion for the
fiscal year ended December 31, 1996.
The acquisition of Integracion has been accounted for using the
purchase method of accounting.
The pro forma consolidated financial statements do not purport to be
indicative of the financial position of the Company or the results of
operations that might have occurred, had the acquisition been consummated on
January 1, 1996, or on January 1, 1997, nor are they indicative of future
results.
2. ACQUISITIONS PRIOR TO DECEMBER 31, 1996
Statement of Operations:
On May 17, 1996, the Company acquired all of the issued and outstanding
shares of Telereunion, Inc., a Delaware corporation ("Telereunion"). The
acquisition was completed by means of a merger between Telereunion and a
newly formed subsidiary of the Company. Upon consummation of the merger,
the subsidiary changed its name to Telereunion, Inc. Telereunion's
operations are conducted through Vextro de Mexico, S.A. de C.V. ("Vextro"),
its 97%-owned subsidiary organized and operating under the laws of the
Republic of Mexico.
The unaudited pro forma statement of operations of the Company for the
year ended December 31, 1996, was adjusted to include the acquisition of
Telereunion/Vextro as if it had occurred on January 1, 1996.
On September 5, 1996, the Company acquired all of the outstanding
common stock of Orion Communications ("Orion"), in exchange for 400,000
shares of its common stock. This transaction was accounted for under the
pooling-of-interests method and accordingly, the unaudited pro forma
statement of operations of the Company for the year ended December 31, 1996,
includes the results of the operations of Orion since its inception on April
10, 1996. As a result, no pro forma adjustment was necessary.
The pro forma consolidated statement of operations of the Company ("Pro
Forma Telscape") incorporates the following pro forma assumptions:
(a) The adjustment to reflect the subsequent reclassification of amounts
due to Telereunion from one of its stockholders for expenses incurred
in connection with the proposed merger to administrative expense of
Vextro.
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(b) The amortization of goodwill relating to the acquisition has been
included in the pro forma consolidated statement of operations from
January 1, 1996.
(c) The adjustment to reflect the three percent minority ownership in
Vextro.
Balance Sheet:
The historical consolidated balance sheet for the Company includes the
balance sheets of Telereunion and Orion as of June 30, 1997 and, therefore,
a separate balance sheet was not included.
3. ACQUISITION SUBSEQUENT TO DECEMBER 31, 1996
Effective July 1, 1997, the Company acquired 100% of the common stock
of Integracion. Integracion was organized and operates under the laws of the
Republic of Mexico. The acquisition of Integracion has been accounted for
using the purchase method of accounting. The purchase price of the acquisition
has been calculated as follows:
NOTE FAIR VALUE
Cash $ 130,000
Promissory Notes 3a 1,758,806
Convertible Notes 3a 796,595
Warrants 3b 0
Transaction Costs 57,750
2,743,151
Fair value of net assets acquired 3c 1,088,701
Goodwill $ 1,654,450
(a) The present value of the non-interest bearing Promissory Notes
and Convertible Notes was determined using an incremental borrowing
interest rate of 10 percent.
(b) The Warrants to purchase 100,000 shares of the Company's Common
Stock are contingent upon, and the number of shares of Common Stock
issuable upon exercise is determined by, certain future financial and
operating performance criteria which have not been met. As a result,
the value of such Warrants cannot be measured.
(c) The fair value of net assets acquired was determined as follows:
(i) Receivables were recorded at amounts to be recovered less
allowances for uncollectible amounts;
(ii) Fixed assets were stated at historical cost which approximate
current replacement costs;
(iii) Other assets were recorded at cost which was assessed to
approximate fair value; and
(iv) Accounts payable and accrued liabilities were recorded at
the present value of amounts to be paid.
The amounts recorded in the financial statements of Integracion were
assessed to approximate fair value and no fair value adjustments were
recorded in the purchase transaction. No value was attributed to the
Additional Payment as such is contingent upon Integracion meeting certain
performance standards.
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(a) The adjustment to record the purchase accounting as of June 30,
1997 is as follows:
DR (CR)
Cash $ (130,000)
Goodwill 1,654,450
Accounts payable (57,750)
Notes payable (2,555,401)
Shareholders' equity 1,088,701
$ -
4. PRO FORMA ADJUSTMENTS
(a) Amortization of goodwill has been recorded in the pro forma
statement of operations based on the purchase price as discussed in
Note 3 above. Goodwill is amortized on a straight-line basis over 15
years.
(b) Imputed interest is recorded on the non-interest bearing
Convertible Notes and Promissory Notes using the Company's
incremental borrowing rate of 10%.
(c) Due to the fact that the amounts recorded in the financial
statements of Integracion were assessed to approximate fair value and
no fair value adjustments were made, no adjustments were made to
reconcile any differences between book value and tax value as a
result of the purchase transaction. An adjustment has been made to
the unaudited consolidated statement of operations for the six months
ended June 30, 1997 to recognize the tax benefit of the deductibility
of the interest expense and amortization of goodwill in connection
with the acquisition of Integracion. The adjustment is consistent
with the treatment of taxes for the Company's historical consolidated
statement of operations for the six months ended June 30, 1997. No
adjustment for such tax benefits were made in the pro forma statement
of operations for the year ended December 31, 1996 due to the
uncertainty that the Company would utilize its net operating loss
carryforwards before expiration as of that date.
(d) The earnings per common and common equivalent share is based on
the weighted average number of shares of common stock outstanding
for the periods ended June 30, 1997 and December 31, 1996. The
Convertible Notes were considered for the period ended June 30, 1997
with respect to the disclosure of fully diluted earnings per share
but resulted in the same earnings per share calculation as that of
primary earnings per share; therefore, no additional disclosure has
been made. With respect to the period ended December 31, 1996, the
Convertible Notes would have an anti-dilutive effect and, therefore,
a fully diluted earnings per share disclosure is inapplicable.
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<AUDIT-REPORT>
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Stockholders of
Integracion de Redes, S.A. de C.V.:
We have audited the accompanying balance sheets as of December 31, 1996
and 1995 of Integracion de Redes, S.A. de C.V., and the related statements of
income, changes in stockholders' equity and changes in financial position for
the years ended December 31, 1996 and 1995, all expressed in Mexican pesos.
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 have conducted our audits in accordance with generally accepted
auditing standards in Mexico, which are substantially the same as those
followed in the United States. 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 presentation of the financial statements. We believe that our audits
provide a reasonable basis for our opinion.
As of the year ended December 31, 1995, the Company adopted the
recognition of the effects of inflation on financial information as required
under Mexican GAAP Bulletin B-10, "Recognition of the Effects of Inflation on
Financial Information", as amended, issued by the Mexican Institute of Public
Accountants. The accompanying financial statements at December 31, 1995, are
stated at historical cost.
In our opinion, except for not recognizing the effects of inflation on
financial information at December 31, 1995, as mentioned in the preceding
paragraph, the financial statements referred to above present fairly, in all
material respects, the financial position of Integracion de Redes, S.A. de
C.V. as of December 31, 1996 and 1995, and the results of its operations,
changes in stockholders' equity and changes in its financial position for the
years ended December 31, 1996 and 1995, in conformity with generally accepted
accounting principles in Mexico.
Accounting principles generally accepted in Mexico vary in certain
important respects from accounting principles generally accepted in the United
States. The application of the latter would have affected the determination
of net income expressed in Mexican pesos for each of the years ended December
31, 1996 and 1995, and the determination of stockholders' equity and financial
position also expressed in Mexican pesos as of December 31, 1996 and 1995 to
the extent summarized in Note 6 to the financial statements.
DE LAS FUENTES, DE LA MORA Y VALDIVIA, S.C.
Mexico City
September 6, 1997
</AUDIT-REPORT>
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INTEGRACION DE REDES, S.A. DE C.V.
BALANCE SHEETS
AS OF DECEMBER 31, 1996 AND 1995
(*) MEXICAN PESOS (PS) WITH PURCHASING POWER
AS OF DECEMBER 31, 1996 AND U.S. DOLLARS ($)
1996 1996 1995
(NOTE 6) (*) HISTORICAL
ASSETS
Current assets:
Cash and cash equivalents $ 480,536 Ps 3,772,640 Ps 2,328,721
Accounts receivable (Note 1) 570,699 4,480,499 1,974,210
Sundry debtors 18,497 145,215 63,200
Taxes recoverable 12,492 98,077 108,255
601,688 4,723,791 2,145,665
Inventories (Note 1) 646,970 5,079,296 1,897,723
Total current assets 1,729,194 13,575,727 6,372,109
Equipment, net (Note 2) 101,048 793,316 425,858
Other assets 11,857 93,085 19,343
Total assets $ 1,842,099 Ps 14,462,128 Ps 6,817,310
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable (Note 3) $ 722,363 Ps 5,671,196 Ps 2,506,784
Sundry creditors 109,722 861,425 516,553
Taxes payable 14,020 110,066 225,888
Advances from customers 57,313 449,956 72,650
Employees' profit sharing 2,324 18,247 186,865
Total current liabilities 905,742 7,110,890 3,508,740
Stockholders' equity:
Capital stock (Note 5) 14,982 117,618 50,000
Retained earnings (Note 4) 668,887 5,251,366 786,586
Net income for the year 356,406 2,798,107 2,471,984
Deficit on restatement of capital ( 103,918) (815,853) -
Total stockholders' equity 936,357 7,351,238 3,308,570
Total liabilities and
stockholders' equity $ 1,842,099 Ps 14,462,128 Ps 6,817,310
The accompanying notes are an integral part of these financial statements.
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INTEGRACION DE REDES, S.A. DE C.V.
STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
(*) MEXICAN PESOS (PS) WITH PURCHASING POWER
AS OF DECEMBER 31, 1996 AND U.S. DOLLARS ($)
1996 1996 1995
(NOTE 6) (*) HISTORICAL
Net sales $ 3,561,388 Ps 27,960,100 Ps 20,991,897
Cost of sales 2,397,494 18,822,489 13,586,905
Gross profit 1,163,894 9,137,611 7,404,992
General and administrative expenses 745,973 5,856,563 5,074,900
Operating income 417,921 3,281,048 2,330,092
Comprehensive financing expense (income):
Interest income (58,907) (462,477) (696,657)
Gain on net monetary position (3,482) (27,341) -
Loss on foreign currency exchange, net 82,368 646,667 -
19,979 156,849 (696,657)
Other expense (income), net 3,043 23,883 (12,661)
Income before the following provisions 394,899 3,100,316 3,039,410
Provision for income taxes 38,493 302,209 387,876
Provision for employee profit sharing - - 179,550
Net income for the year $ 356,406 Ps 2,798,107 Ps 2,471,984
Net income per share $ 712.81 Ps 5,596.21 Ps 4,943.96
Average common shares outstanding 500 500 500
The accompanying notes are an integral part of these financial statements.
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INTEGRACION DE REDES, S.A. DE C.V.
STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
(*) MEXICAN PESOS (PS) WITH PURCHASING POWER
AS OF DECEMBER 31, 1996
<TABLE>
<CAPTION>
DEFICIT ON
CAPITAL NET INCOME RETAINED RESTATEMENT
STOCK FOR THE YEAR EARNINGS OF CAPITAL TOTAL
<S> <C> <C> <C> <C> <C>
Balances at December 31, 1994 Ps 50,000 Ps Ps 786,586 Ps Ps 836,586
Net income for the year 2,471,984 2,471,984
Balances at December 31, 1995 50,000 2,471,984 786,586 3,308,570
Transfer to retained earnings (2,471,984) 2,471,984
Net income for the year 3,776,403 3,776,403
Recognition of the effects 67,618 (978,296) 1,992,796 (815,853) 266,265
Balances at December 31, 1996 Ps 117,618 Ps 2,798,107 Ps 5,251,366 Ps ( 815,853) Ps 7,351,238
The accompanying notes are an integral part of these financial statements.
</TABLE>
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INTEGRACION DE REDES, S.A. DE C.V.
STATEMENTS OF CHANGES IN FINANCIAL POSITION
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
(*) MEXICAN PESOS (PS) WITH PURCHASING POWER
AS OF DECEMBER 31, 1996 AND U.S. DOLLARS ($)
1996 1996 1995
(NOTE 6) (*) HISTORICAL
OPERATIONS:
Net income $ 356,406 Ps 2,798,107 Ps 2,471,984
Charges to income not requiring cash:
Depreciation and amortization 19,322 151,692 81,737
375,728 2,949,799 2,553,721
WORKING CAPITAL:
Decrease net in accounts receivable,
inventories, accounts payable and
other (270,712) (2,125,316) (1,115,417)
Funds provided by operations 105,016 824,483 1,438,304
FINANCING:
Recognition of the effects of inflation 124,609 978,296
Funds provided by financing activities 124,609 978,296
INVESTMENT:
Acquisition of equipment 45,709 358,860 181,478
Funds applied to investment activities 45,709 358,860 181,478
Increase in cash and cash equivalents 183,918 1,443,919 1,256,826
Cash and cash equivalents
at beginning of the year 296,618 2,328,721 1,071,895
Cash and cash equivalents
at end of the year $ 480,536 Ps 3,772,640 Ps 2,328,721
The accompanying notes are an integral part of these financial statements.
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INTEGRACION DE REDES, S.A. DE C.V.
NOTES TO THE FINANCIAL STATEMENTS
(*) MEXICAN PESOS (PS) WITH PURCHASING POWER
AS OF DECEMBER 31, 1996 AND U.S. DOLLARS ($)
NOTE 1 SIGNIFICANT ACCOUNTING POLICIES:
The Company's management did not consider an allowance for doubtful accounts
necessary since the Company's history shows a minimum percentage of
uncollectible accounts.
The Company uses the straight-line method of depreciating equipment and
furniture.
Inventories are stated at cost or market value, whichever is lower.
Salaries and other labor related benefits are taxed at 2%.
The Company has 2,324 Mexican pesos in employee profit sharing payable at
December 31, 1996.
The accompanying financial statements as of December 31, 1996 have been
restated to the end of the year considering the General Price Level Method in
accordance with Mexican GAAP.
The accounts affected by the recognition of inflation are as follows:
Inventories
Income statement accounts
Property and equipment
Stockholders' equity accounts
The general price level used for this purpose was the Mexican National
Consumer Price Index.
NOTE 2 EQUIPMENT
1996 1996 1995
(NOTE 6) (*) HISTORICAL
Vehicles $ 73,335 Ps 575,748 Ps 348,572
Data processing equipment 21,648 169,957 93,372
Furniture and fixtures 20,912 164,176 109,076
115,895 909,881 551,020
Accumulated depreciation (32,264) 276,855) (125,162)
80,631 633,026 425,858
Restatement 20,417 160,290 --
$ 101,048 Ps 793,316 Ps 425,858
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NOTE 3 FOREIGN SUPPLIERS
As of December 31, 1996 the Company owed Northern Telecom $36,459 U.S.
dollars.
NOTE 4 RETAINED EARNINGS
Retained earnings distributed as dividends are subject to income tax charged
to the Company when the distribution is not made from net taxable income, as
defined in Mexican tax law.
NOTE 5 CAPITAL STOCK
The Company operates on a minimum of Capital Stock of 50,000 Mexican pesos
and a maximum with no limit represented with 500 shares with a value of 100
peso each.
1996 1996 1995
(NOTE 6) (*) HISTORICAL
Capital stock $ 6,369 Ps 50,000 Ps 50,000
Restatement of captial stock 8,613 67,618 -
$ 14,982 Ps 117,618 Ps 50,000
NOTE 6 SIGNIFICANT DIFFERENCES BETWEEN MEXICAN AND U.S. GAAP
The financial statements of the Company are presented on the basis of
accounting principles generally accepted in Mexico ( Mexican GAAP).
Except for inflation accounting, Mexican GAAP are, in general terms, similar
to the accounting principles generally accepted in the United States (US
GAAP). However, there are areas in which Mexican accounting standards and
practices differ from the requirements of US GAAP.
The principal differences between Mexican GAAP and US GAAP are as follows:
RECOGNITION OF THE EFFECTS OF INFLATION ON FINANCIAL INFORMATION:
The provisions of Bulletin B-10, as amended, relating to the recognition of
the effects of inflation in the financial statements, have no counterparts
under US GAAP. However, as Mexican GAAP includes the effects of inflation in
the primary financial statements, the US Securities and Exchange Commission
does not require the reversal of the restatement of the financial statements
to recognize the effects of inflation.
DEFERRED INCOME TAXES:
Under Mexican GAAP, deferred income taxes and compulsory employee profit
sharing are provided on the liability method only for non-recurring and
identifiable book and tax differences that are expected to reverse over a
definite period of time. Under US GAAP, deferred taxes are recognized for
the tax consequences of all temporary differences, both recurring and
nonrecurring, between the financial statement carrying amounts and the tax
basis of existing assets and liabilities.
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CONVENIENCE STATEMENTS:
The 1996 US dollar amounts, denoted by the symbol $, shown in the financial
statements have been included solely for the convenience of the reader and
were translated from Mexican pesos at a rate quoted by Bank of Mexico for
December 31, 1996 of 7.8509 pesos per US dollar. Such translation should not
be construed as a representation that the Mexican peso amounts have been or
could be converted into US dollars at this or any other rate.
STATEMENT OF CHANGES IN FINANCIAL POSITION:
Under Mexican GAAP, the Company presents statements of changes in financial
position in constant Mexican pesos. This presentation identifies the
generation and application of resources representing differences between
beginning and ending financial statement balances in constant Mexican pesos.
The changes in the financial statement balances included in this statement
constitute cash flow activity stated in constant Mexican pesos. In
accordance with Mexican GAAP, the reduction in current and long term debt due
to restatement in constant Mexican pesos is presented as a resource applied
to financing activities.
