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): 9/16/96
Global Intellicom, Inc.
------------------------------------------------------
(exact name of registrant as specified in its charter)
Nevada
------------------------------------------------------
(state or other jurisdiction of incorporation)
0-26684 13-3797104
- ------------------------ ---------------------------------
(Commission file number) (IRS employer identification No.)
747 Third Avenue, New York, NY 10017
- ---------------------------------------- ----------
(address of principal executive offices) (zip code)
Registrant's telephone number, including area code: (212) 750-3772
N/A
-------------------------------------------------------------
(former name or former address, if changed since last report)
<PAGE>
Item 7. Financial Statements and Exhibits
- ------- ---------------------------------
(a) Financial Statements of Business Acquired
Pursuant to Item 7(a), provided herein on pages F1-F16 are
the audited financial statements of Global-InSync, Inc.
for the one month ended September 30, 1996.
Pursuant to Item 7(a), provided herein on pages F18-F32,
are the audited financial statements of Mantech Solutions
Corporation ("MSOL") for the eight months ended August 31,
1996, the year ended December 31, 1995, and February 19,
1994 (inception date) through December 31, 1994.
(b) Pro Forma Financial Information
Pursuant to Item 7(b), provided herein on pages PF1-PF7
are the following proforma financial statements for Global
Intellicom, Inc.: (i) unaudited proforma condensed consolidated
balance sheet for the year ended December 31, 1995; (ii) unaudited
proforma condensed consolidated statement of operations for the nine
months ended September 30, 1996, and (iii) unaudited proforma
condensed consolidated statement of operations for the year ended
December 31, 1995.
(c) Exhibits
Exhibit
Number Description
------ -----------
10.1* Asset Purchase Agreement dated as of September
16, 1996, by and between Global Intellicom,
Inc. and Global-InSync, Inc. on the one hand,
and MSOL and Mantech International Corporation,
on the other.
- --------------------------------
* The document was filed as an exhibit to the original Form 8-K.
<PAGE>
PRO FORMA FINANCIAL STATEMENTS
DESCRIPTION OF TRANSACTION
On September 16, 1996, Global-InSync, Inc. ("InSync"), a wholly-owned subsidiary
of Global Intellicom, Inc. ("Global") purchased substantially all of the assets
of ManTech Solutions Corp. ("MSOL"), subject to certain liabilities (the "Net
Assets"), under the terms of an Asset Purchase Agreement dated as of September
16, 1996, entered into by and between Global, InSync, MSOL and MSOL's parent,
ManTech International Corp. ("ManTech"), the sale to be effective as of
September 1, 1996. This transaction was accounted for as a purchase.
MSOL is a Virginia corporation engaged in the business of manufacturing made to
order computer servers and workstations. MSOL assets acquired include all
intellectual property, fixtures, inventory, trade accounts receivable and all
other assets material to the operation of MSOL's business, which will continue
to operate under the InSync name as a subsidiary of Global.
The purchase price was based on the fair value of MSOL's assets. The purchase
price agreed to was $5,736,084 to be paid to MSOL as follows:
1. The issuance of 350,000 shares of Global Series 3 Cumulative Preferred
Stock with a 6% annual dividend, convertible at a value of $10 per share
to restricted shares of Global common stock. Such preferred stock was
valued at $3,500,000.
2. The issuance of a 9% promissory note for $1,486,084 ("First Note").
Interest begins accruing on March 16, 1997. Payments are to be made
forty-five days after each fiscal quarter, commencing with the quarter
ended June 30, 1997. The payments are calculated as follows:
a. 2% of net sales of InSync
b. If at the end of four quarters ended June 30th (commencing in 1998),
the sum of the quarterly payments is less than the interest accrued
over the previous four quarters plus ten percent (10%) of the
original principal of the note ($148,608), an adjustment payment
will be made to cover such shortfall.
3. The issuance of a 9% promissory note for $470,000 with substantially the
same terms as the First Note, except that payments do not commence until
the earlier of December 31, 2001 or upon the payment in full of the First
Note.
4. The issuance of 49,778 restricted shares of Global common stock, valued at
$280,000.
In the opinion of management, all adjustments necessary to present fairly this
pro forma information have been made.
The pro forma information may not be indicative of the results that would have
occurred if the acquisition had been effective on the dates indicated or of the
results that may be obtained in the future.
<PAGE>
These pro forma consolidated condensed financial statements should be read in
conjunction with the following:
1. Global's consolidated financial statements and notes thereto for the year
ended December 31, 1995 included in Form 10-K.
2. Global's consolidated financial statements and notes thereto for the nine
months ended September 30, 1996 (unaudited) included in Form 10-Q.
3. InSync's financial statements and notes thereto for the one month ended
September 30, 1996 included elsewhere in Form 8-K.
4. MSOL's financial statements and notes thereto for the period February 19,
1994 (inception date) to December 31, 1994, year ended December 31, 1995
and January 1, 1996 to August 31, 1996 included elsewhere in Form 8-K.
The pro forma condensed consolidated balance sheet of the Company, assuming MSOL
had been acquired as of December 31, 1995, is as follows:
<PAGE>
GLOBAL INTELLICOM, INC. AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1995
<TABLE>
<CAPTION>
COMPANY AS PRO FORMA PRO FORMA
ASSETS REPORTED ADJUSTMENTS MSOL CONSOLIDATED
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
CURRENT ASSETS $ 7,127,628 -- $ 6,242,898 (1) $ 13,639,502
268,976 (5)
PROPERTY AND EQUIPMENT 544,275 -- 468,448 (1) 1,012,723
INTANGIBLE ASSETS 3,462,446 -- 1,637,996 (1) 4,868,442
(88,024)(3)
125,000 (4)
(268,976)(5)
OTHER ASSETS 179,482 -- 19,761 (1) 199,243
------------ ------------ ------------ ------------
$ 11,313,831 -- $ 8,406,079 $ 19,719,910
============ ============ ============ ============
LIABILITIES AND
STOCKHOLDERS' EQUITY
CURRENT LIABILITIES $ 8,234,079 -- $ 2,633,019 (1) $ 10,867,098
DUE ON ACQUISITIONS 447,522 -- 1,956,084 (2) 2,315,582
(88,024)(3)
OTHER LONG-TERM LIABILITIES 302,706 -- -- 302,706
STOCKHOLDERS' EQUITY 2,329,524 -- 3,780,000 (2) 6,234,524
125,000 (4)
------------ ------------ ------------ ------------
$ 11,313,831 -- $ 8,406,079 $ 19,719,910
============ ============ ============ ============
</TABLE>
See notes to pro forma condensed consolidated balance sheet
<PAGE>
GLOBAL INTELLICOM, INC. AND SUBSIDIARIES
NOTES TO PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1995
(1) To record the purchase price of the net assets as of December 31, 1995
based on certain net assets and liabilities per MSOL's audited balance
sheet as of August 31, 1996 as follows.
Accounts receivable $ 3,232,140
Inventory 2,993,811
Other current assets 16,947
Property and equipment 468,448
Other assets 19,761
Accounts payable and accrued expenses (2,238,172)
Other current liabilities (394,847)
-----------
Total net assets purchased 4,098,088
Excess cost of acquisitions over net
tangible assets acquired 1,637,996
-----------
Total purchase price $ 5,736,084
===========
(2) To record the payment of the purchase price of MSOL as follows:
The issuance of 350,000 shares of Series 3
Cumulative Preferred Stock, convertible at a
value of $10 per share to restricted shares
of the Company's common stock. $ 3,500,000
The issuance of 49,778 restricted shares of
the Company's common stock, valued at $5.625
per share. 280,000
-----------
3,780,000
The issuance of a 9% promissory note for
$1,486,084 (First Note). Interest begins
accruing on March 16, 1997. Interest was
imputed at 9% for the period September 16, 1996
(date of issuance) to March 15, 1997. 1,486,084
The issuance of a 9% promissory note for
$470,000 with substantially the same terms as the
First Note, except that payments do not commence
until the earlier of December 31, 2001 or upon the
payment of the First Note. Interest was imputed
at 9% for the period September 16, 1996
(date of issuance) to March 15, 1997. 470,000
-----------
1,956,084
-----------
Total purchase price $ 5,736,084
===========
<PAGE>
GLOBAL INTELLICOM, INC. AND SUBSIDIARIES
NOTES TO PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
(continued)
DECEMBER 31, 1995
(3) To record imputed interest on above debt as follows:
First Note $66,874
Second Note 21,150
-------
Total imputed interest $88,024
=======
(4) To record the issuance of 22,223 shares of the Company's common stock in
connection with the MSOL acquisition which were in payment of divestiture
bonuses. The shares were valued at $5.625 per share.
(5) To record deferred income taxes generated by the acquisition of MSOL as
follows:
Warranty reserve $ 78,000
Inventory reserve 135,211
Allowance for doubtful accounts 55,765
--------
$268,976
========
<PAGE>
GLOBAL INTELLICOM, INC. AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1996
<TABLE>
<CAPTION>
COMPANY AS PRO FORMA PRO FORMA
REPORTED ADJUSTMENTS MSOL CONSOLIDATED
------------ ------------ ------------ ------------
(1) (1)
<S> <C> <C> <C> <C>
NET SALES $ 23,983,314 -- $ 18,134,212 $ 42,117,526
COST OF GOODS SOLD 20,412,202 -- 16,262,313 36,674,515
------------ ------------ ------------ ------------
GROSS PROFIT 3,571,112 -- 1,871,899 5,443,011
OPERATING EXPENSES 4,890,536 (95,465)(2) 2,484,146 7,280,565
(122,406)(3)
61,270 (4)
62,484 (5)
------------ ------------ ------------ ------------
INCOME (LOSS) FROM
OPERATIONS (1,319,424) 94,117 (612,247) (1,837,554)
OTHER EXPENSES INCLUDING
INTEREST EXPENSE 626,648 797,398 1,424,046
------------ ------------ ------------ ------------
LOSS BEFORE PROVISION FOR
INCOME TAX CREDITS (1,946,072) 94,117 (1,409,645) (3,261,600)
PROVISION FOR INCOME TAX
CREDITS (778,429) 56,385 (6) (549,980) (1,272,024)
------------ ------------ ------------ ------------
NET LOSS $ (1,167,643) $ 37,732 $ (859,665) $ (1,989,576)
============ ============ ============ ============
NET LOSS PER COMMON SHARE $ (.37) $ (.63)
============ ============
WEIGHTED AVERAGE NUMBER
OF COMMON SHARES
OUTSTANDING 3,165,678 3,165,678
============ ============
</TABLE>
See notes to pro forma condensed consolidated statement of operations
<PAGE>
GLOBAL INTELLICOM, INC. AND SUBSIDIARIES
NOTES TO PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1996
(1) Reflects the historical operating results of the Company for the nine
months ended September 30, 1996 (which includes the one month ended
September 30, 1996 for InSync) and MSOL for the eight months ended August
31, 1996.
(2) To reverse the amortization of intangible assets on MSOL's 1994 purchase
of net assets.
(3) To reverse the depreciation of property and equipment of MSOL.
(4) To adjust the amortization of excess cost of acquisition over net tangible
assets acquired on purchase of MSOL's net assets.
(5) To adjust the depreciation of property and equipment of InSync.
(6) To adjust income tax credits for the nine months ended September 30, 1996.
<PAGE>
GLOBAL INTELLICOM, INC. AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1995
(UNAUDITED)
<TABLE>
<CAPTION>
COMPANY AS PRO FORMA PRO FORMA
REPORTED ADJUSTMENTS MSOL CONSOLIDATED
------------ ------------ ------------ ------------
(1) (1)
<S> <C> <C> <C> <C>
NET SALES $ 30,447,467 -- $ 23,440,555 $ 53,888,022
COST OF GOODS SOLD 26,688,044 -- 21,102,857 47,790,901
------------ ------------ ------------ ------------
GROSS PROFIT 3,759,423 -- 2,337,698 6,097,121
OPERATING EXPENSES 3,357,036 (143,196)(2) 5,128,042 8,359,533
(169,808)(3)
93,733 (4)
93,726 (5)
------------ ------------ ------------ ------------
INCOME (LOSS) FROM
OPERATIONS 402,387 125,545 (2,790,344) (2,262,412)
OTHER EXPENSES INCLUDING
INTEREST EXPENSE 317,945 856,266 1,174,211
------------ ------------ ------------ ------------
INCOME (LOSS) BEFORE
PROVISION FOR INCOME
TAX CREDITS 84,442 125,545 (3,646,610) (3,436,623)
PROVISION FOR INCOME TAX
CREDITS (185,741) 310,333 (6) (1,464,875) (1,340,283)
------------ ------------ ------------ ------------
NET INCOME (LOSS) $ 270,183 $ (184,788) $ (2,181,735) $ (2,096,340)
============ ============ ============ ============
NET INCOME (LOSS) PER
COMMON SHARE $ .09 $ (.72)
============ ============
WEIGHTED AVERAGE NUMBER
OF COMMON SHARES
OUTSTANDING 2,927,170 2,927,170
============ ============
</TABLE>
See notes to pro forma condensed consolidated statement of operations
<PAGE>
GLOBAL INTELLICOM, INC. AND SUBSIDIARIES
NOTES TO PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1995
(1) Reflects the historical operating results of the Company and MSOL for the
year ended December 31, 1995.
(2) To reverse amortization of intangible assets on MSOL's 1994 purchase of
net assets.
(3) To reverse depreciation of property and equipment of MSOL.
(4) To record the amortization of excess cost of acquisition over net tangible
assets acquired on purchase of MSOL's net assets.
(5) To record depreciation of property and equipment of InSync.
(6) To adjust income tax credits for the year ended December 31, 1995.
<PAGE>
GLOBAL-INSYNC, INC.
REPORT ON FINANCIAL STATEMENTS
ONE MONTH ENDED SEPTEMBER 30, 1996
F-1
<PAGE>
GLOBAL-INSYNC, INC.
REPORT ON FINANCIAL STATEMENTS
ONE MONTH ENDED SEPTEMBER 30, 1996
CONTENTS
PAGE
----
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS F-3
BALANCE SHEET F-4 - F-5
STATEMENT OF INCOME F-6
STATEMENT OF STOCKHOLDERS' EQUITY F-7
STATEMENT OF CASH FLOWS F-8
NOTES TO FINANCIAL STATEMENTS F-9 - F-16
F-2
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors
Global-InSync, Inc.
New York, New York
We have audited the accompanying balance sheet of Global-InSync, (the "Company")
as of September 30, 1996, and the related statements of income, changes in
stockholders' equity and cash flows for the one month ended September 30, 1996.
The financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on the financial statements based on our
audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements of the Company referred to above
present fairly, in all material respects, the financial position as of September
30, 1996 and the results of its operations and its cash flows for the one month
period then ended in conformity with generally accepted accounting principles.
/s/ MILLER, ELLIN & COMPANY
MILLER, ELLIN & COMPANY
CERTIFIED PUBLIC ACCOUNTANTS
New York, New York
October 25, 1996
F-3
<PAGE>
GLOBAL-INSYNC, INC.
BALANCE SHEET
SEPTEMBER 30, 1996
ASSETS
CURRENT ASSETS:
Cash $ 654,895
Accounts receivable - trade, less allowance for
doubtful accounts of $142,990 4,346,249
Inventories (Note 3) 3,051,909
Due from parent company (Note 11) 492,000
Prepaid expenses and other current assets 33,818
Deferred income taxes (Note 8) 229,977
-----------
Total current assets 8,808,848
-----------
PROPERTY AND EQUIPMENT - net of accumulated
depreciation and amortization (Note 4) 470,151
-----------
INTANGIBLE ASSETS - net of accumulated
amortization (Note 5) 1,396,967
-----------
OTHER ASSETS 10,613
-----------
$10,686,579
===========
The accompanying notes are an integral part of the financial statements
F-4
<PAGE>
GLOBAL-INSYNC, INC.
BALANCE SHEET
(CONTINUED)
LIABILITIES AND STOCKHOLDERS' EQUITY
SEPTEMBER 30, 1996
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 4,034,179
Royalties payable 121,399
Due to ManTech International Corp. (Note 7) 121,781
Sales tax payable 103,640
Warranty reserve 100,000
Customer deposits 33,516
Income taxes payable (Note 8) 127,007
-----------
Total current liabilities 4,641,522
-----------
NOTES PAYABLE - acquisition (Note 6) 1,882,732
-----------
COMMITMENTS (Note 9)
STOCKHOLDERS' EQUITY:
Common stock - $.01 par value:
Authorized - 200 shares
Issued - 100 shares 1
Additional paid-in capital 3,904,999
Retained earnings 257,325
-----------
Total stockholders equity 4,162,325
-----------
$10,686,579
===========
The accompanying notes are an integral part of the financial statements
F-5
<PAGE>
GLOBAL-INSYNC, INC.
STATEMENT OF INCOME
ONE MONTH ENDED SEPTEMBER 30, 1996
NET SALES $ 3,979,238
COST OF GOODS SOLD 3,293,412
-----------
GROSS PROFIT 685,826
-----------
OPERATING EXPENSES:
Selling, shipping and general and
administrative expenses 231,535
Depreciation and amortization 7,811
Amortization of intangibles 9,029
-----------
248,375
-----------
OPERATING INCOME 437,451
-----------
OTHER INCOME (EXPENSES):
Interest expense (14,671)
Sundry income 552
-----------
(14,119)
-----------
INCOME BEFORE PROVISION
FOR INCOME TAXES 423,332
PROVISION FOR INCOME TAXES
(Note 8) 166,007
-----------
NET INCOME $ 257,325
===========
The accompanying notes are an integral part of the financial statements
F-6
<PAGE>
GLOBAL-INSYNC, INC.
STATEMENT OF STOCKHOLDERS' EQUITY
ONE MONTH ENDED SEPTEMBER 30, 1996
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL TOTAL
----------------------- PAID-IN RETAINED STOCKHOLDERS'
SHARES AMOUNT CAPITAL EARNINGS EQUITY
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
BALANCE AT SEPTEMBER 1, 1996 -- $ -- $ -- $ -- $ --
Capital contributions 100 1 3,904,999 -- 3,905,000
Net income for the one month
ended September 30, 1996 -- -- -- 257,325 257,325
---------- ---------- ---------- ---------- ----------
BALANCE AT SEPTEMBER 30, 1996 100 $ 1 $3,904,999 $ 257,325 $4,162,325
========== ========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of the financial statements
F-7
<PAGE>
GLOBAL-INSYNC, INC.
STATEMENT OF CASH FLOWS
ONE MONTH ENDED SEPTEMBER 30, 1996
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 257,325
Adjustments to reconcile net income to net
cash provided by operations:
Depreciation and amortization 7,811
Amortization of intangible assets 9,029
Imputed interest on long-term debt 14,672
Deferred income taxes 39,000
Changes in assets and liabilities:
Accounts receivable (1,121,841)
Due from parent company (492,000)
Inventories (58,098)
Prepaid expenses and other current assets (9,139)
Other assets --
Accounts payable and accrued expenses 1,859,195
Royalties payable 14,108
Due to ManTech International Corp. 121,781
Warranty reserve (100,000)
Sales tax payable 36,692
Income taxes payable 127,007
Customer deposits (50,281)
-----------
NET CASH PROVIDED BY OPERATING ACTIVITIES 655,261
-----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (366)
-----------
NET CASH USED IN INVESTING ACTIVITIES (366)
-----------
NET CHANGE IN CASH AND CASH - ending $ 654,895
===========
SCHEDULE OF NON-CASH OPERATING,
INVESTING AND FINANCING ACTIVITIES:
Purchase of assets pursuant to agreement (5,736,084)
Increase in intangible assets (125,000)
Issuance of preferred and common stock of
Global Intellicom, Inc. pursuant to agreement 3,905,000
Issuance of debt thereon 1,868,060
Imputed interest on debt 88,024
-----------
$ --
===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for interest $ --
Cash paid for income taxes --
The accompanying notes are an integral part of the financial statements
F-8
<PAGE>
GLOBAL-INSYNC, INC.
NOTES TO FINANCIAL STATEMENTS
ONE MONTH ENDED SEPTEMBER 30, 1996
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Business
-------------------------
Global-InSync, Inc. (the "Company"), a wholly-owned subsidiary of Global
Intellicom, Inc. ("Global"), was incorporated in the state of Virginia on
September 12, 1996. The Company manufactures made-to-order computer
servers and workstations and serves customers in the northeastern part of
the United States.
Basis of Presentation
---------------------
The effective date of the purchase of the net assets of ManTech Solutions
Corp. ("MSOL") from ManTech International Corp. (ManTech) was September 1,
1996 (see Note 2). The statements of income, cash flows and stockholders'
equity include the accounts of the Company for the month ended September
30, 1996.
Use of Estimates in the Preparation of Financial Statements
-----------------------------------------------------------
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 these
estimates.
Revenue Recognition
-------------------
Revenue is recognized upon the shipment of products or performance of
services.
Service revenue is recognized only when all significant obligations have
been performed.
Warranty Costs
--------------
The Company provides for an amount it estimates will be needed to cover
future warranty obligations.
F-9
<PAGE>
GLOBAL-INSYNC, INC.
NOTES TO FINANCIAL STATEMENTS
ONE MONTH ENDED SEPTEMBER 30, 1996
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Concentrations of Credit Risk
-----------------------------
Accounts Receivable - Trade
---------------------------
Accounts receivable consist of open trade accounts with various
companies. The Company performs ongoing credit evaluations of its
customers and believes that adequate allowances for any
uncollectible receivables are maintained.
At September 30, 1996, two customers represented 82% of accounts
receivable of which one customer represented 56% of accounts
receivable.
Major Customers
---------------
One customer accounted for 82% of sales for the one month ended
September 30, 1996.
Cash
----
The Company maintains cash balances in its banks which at times may
have exceeded the limits of the Federal Deposit Insurance
Corporation.
Inventories
-----------
Inventories are valued on an identified cost basis and are carried at the
lower of cost or market.
Property and Equipment
----------------------
Property and equipment is stated at cost. Depreciation is provided for
using the straight-line method over the estimated useful lives of the
assets as follows:
Machinery and equipment - 5 years
Furniture and fixtures - 5 years
Leasehold improvements - Life of lease
Expenditures for repairs and maintenance are charged to expense as
incurred.
F-10
<PAGE>
GLOBAL-INSYNC, INC.
NOTES TO FINANCIAL STATEMENTS
ONE MONTH ENDED SEPTEMBER 30, 1996
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Intangible Assets
-----------------
The excess of the purchase cost over the fair value of net assets acquired
in the acquisition (see Note 2) is included in intangible assets and is
being amortized over fifteen years on a straight-line basis in accordance
with Statement of Financial Accounting Standards No. 121 (SFAS No. 121),
"Accounting for the Impairment of Long-lived Assets and For Long-lived
Assets to Be Disposed Of." The Company periodically will review goodwill
to assess recoverability based upon undiscounted expected future cash
flows. Testing for such recoverability in each reporting period may not be
cost effective or even possible and in such cases, the Company will test
assets for impairment if a triggering event occurs (events or changes in
circumstances such that the carrying amount of the assets may not be
recoverable). Impairments would be recognized if a permanent diminution in
value were to occur. (See Note 5.)
Income Taxes
------------
The Company utilizes SFAS No. 109, "Accounting for Income Taxes," which
requires the use of the liability method of accounting for income taxes.
The liability method measures deferred income taxes by applying enacted
statutory rates in effect at the balance sheet date to the differences
between the tax bases of assets and liabilities and their reported amounts
in the financial statements. The resulting deferred tax assets or
liabilities are adjusted to reflect changes in tax laws as they occur.
NOTE 2 - ACQUISITIONS
On September 16, 1996, the Company entered into a contract with MSOL, a
wholly-owned subsidiary of ManTech International Corp. (ManTech) to
purchase substantially all if its assets, subject to certain liabilities.
The purchase was effective on September 1, 1996 and was accounted for as a
purchase.
The purchase price was $5,736,084 and was paid as follows:
1. The issuance of 350,000 shares of Global Series 3 Cumulative
Preferred Stock with a 6% annual dividend, convertible at a value of
$10 per share to restricted shares of Global common stock. Such
preferred stock was valued at $3,500,000.
2. The issuance of a 9% promissory note for $1,486,084 (see Note 6).
3. The issuance of a 9% promissory note for $470,000 (see Note 6).
4. The issuance of 49,778 restricted shares of Global common stock,
valued at $280,000.
The following condensed balance sheet reflects the purchase of the net
assets of MSOL on September 16, 1996:
Current assets $ 6,242,898
Property and equipment 468,448
Excess cost of acquisition over
net tangible assets acquired 1,637,996
Other assets 19,761
Liabilities assumed (2,633,019)
-----------
$ 5,736,084
===========
F-11
<PAGE>
GLOBAL-INSYNC, INC.
NOTES TO FINANCIAL STATEMENTS
ONE MONTH ENDED SEPTEMBER 30, 1996
NOTE 3 - INVENTORIES
Inventories at September 30, 1996 consist of the following:
Raw materials $2,178,402
Work in process 873,507
Finished goods --
----------
$3,051,909
==========
NOTE 4 - PROPERTY AND EQUIPMENT
Property and equipment at September 30, 1996 consists of the following:
Machinery and equipment $198,886
Furniture and fixtures 253,653
Leasehold improvements 25,423
--------
477,962
Less: Accumulated depreciation and
amortization 7,811
--------
$470,151
========
Depreciation and amortization amounted to $7,811 for the one month ended
September 30, 1996.
NOTE 5 - INTANGIBLE ASSETS
Intangible assets at September 30, 1996 consist of the following:
Excess cost of acquisition over
net tangible assets acquired $1,405,996
Less: Accumulated amortization 9,029
----------
$1,396,967
==========
Amortization amounted to $9,029 for the one month ended September 30,1996.
F-12
<PAGE>
GLOBAL-INSYNC, INC.
NOTES TO FINANCIAL STATEMENTS
ONE MONTH ENDED SEPTEMBER 30, 1996
NOTE 6 - NOTES PAYABLE - ACQUISITION
Notes payable - acquisition at September 30, 1996 consist of the
following:
9% promissory note for $1,486,084 payable to MSOL
("First Note"). Interest begins accruing on March 16, 1997.
Interest was imputed at 9% for the period September 16, 1996
(date of issuance) to March 15, 1997. Payments are to be
made forty-five days after each fiscal quarter, commencing
with the quarter ended June 30, 1997. The payments are
calculated as follows:
1. 2% of net sales of the Company (see below).
2. If at the end of four quarters ended June 30th
(commencing in 1998), the sum of the quarterly
payments is less than the interest accrued over
the previous four quarters plus ten percent (10%)
of the original principal of the note ($148,608),
an adjustment payment will be made to cover such
shortfall.
The note is guaranteed by Global. $ 1,430,357
9% promissory note for $470,000 payable to MSOL with
substantially the same terms as the First Note, except
that payments do not commence until the earlier of
December 31, 2001 or upon the payment of the First Note.
Interest begins accruing on March 16, 1997. Interest
was imputed at 9% for the period September 16, 1996
(the date of issuance) to March 15, 1997.
The note is guaranteed by Global. 452,375
------------
1,882,732
Less: Current portion --
------------
$ 1,882,732
============
Net sales are defined as gross sales less sales discounts, returns and
allowances.
Future minimum maturities of notes payable - acquisition are as follows:
1997 $ --
1998 148,608
1999 148,608
2000 148,608
2001 148,608
Thereafter 1,288,300
----------
$1,882,732
==========
Imputed interest on the notes amounted to $14,671 for the one month ended
September 30, 1996.
F-13
<PAGE>
GLOBAL-INSYNC, INC.
NOTES TO FINANCIAL STATEMENTS
ONE MONTH ENDED SEPTEMBER 30, 1996
NOTE 7 - DUE TO MANTECH INTERNATIONAL CORPORATION
Due to ManTech represents advances made to the Company in excess of
payments made to ManTech for the period September 1, 1996 through
September 15, 1996. The balance was paid in October 1996.
NOTE 8 - INCOME TAXES
All company operations are located in the United States. As such, income
before provision for income taxes and provision for income taxes are
generated from domestic sources.
Income before provision for income taxes $ 423,332
============
The components of provision for income taxes by
taxing jurisdiction are as follows:
Federal:
Current 101,035
Deferred 31,200
------------
132,235
------------
State:
Current 25,972
Deferred 7,800
------------
33,772
------------
$ 166,007
============
The major components of deferred tax assets at September 30, 1996 are as
follows:
Accrued warranty reserve $ 39,000
Accrued inventory reserve 135,212
Allowance for doubtful accounts 55,765
------------
$ 229,977
============
No valuation allowance was provided as the deferred tax assets were
considered realizable by Global.
F-14
<PAGE>
GLOBAL-INSYNC, INC.
NOTES TO FINANCIAL STATEMENTS
ONE MONTH ENDED SEPTEMBER 30, 1996
NOTE 8 - INCOME TAXES (CONTINUED)
A reconciliation of the Company's income tax expense computed at the U.S.
federal statutory tax rate of 35% and provision for income tax credits are
as follows:
Income tax expense at statutory rate $ 148,166
Non-deductible items (35,000)
State income taxes, net of federal benefits 17,142
Deferred income taxes 39,000
Benefit of income tax rates below statutory rate (3,233)
Other (68)
------------
Provision for income taxes $ 166,007
============
NOTE 9 - COMMITMENTS
Leases
------
The Company leases its office and warehouse facilities under a lease
expiring in February 1998. The Company is also responsible for its share
of operating expenses (as defined). In addition, the Company leases
equipment under various leases expiring through January 1999.
Future minimum rental payments under the leases are as follows:
Twelve Months Real
Ended September 30, Estate Equipment
------------------- ------ ---------
1997 $138,185 $ 64,470
1998 142,331 36,570
1999 -- 7,273
-------- --------
$280,516 $108,313
======== ========
Real estate rent expense amounted to $27,637 for the one month ended
September 30, 1996.
F-15
<PAGE>
GLOBAL-INSYNC, INC.
NOTES TO FINANCIAL STATEMENTS
ONE MONTH ENDED SEPTEMBER 30, 1996
NOTE 10 - RELATED PARTY TRANSACTIONS
The Company advanced funds to Global in the normal course of business.
Global owed the Company $492,000 at September 30, 1996.
NOTE 11 - FAIR VALUE OF FINANCIAL INSTRUMENTS
The amounts at which cash, accounts receivable, accounts payable, accrued
expenses and other current liabilities and due to ManTech are presented in
the balance sheet approximate their fair value due to their short
maturities. The following table presents the carrying amount and fair
value at September 30, 1996 for long-term debt.
Carrying Fair
Amount Value
------ -----
Long-term debt $1,882,732 $1,151,000
========== ==========
The fair value of long-term debt has been determined based on discounted
cash flow using a market rate of interest at the balance sheet date as
applicable to comparable debt.
F-16
<PAGE>
[THIS PAGE HAS BEEN INTENTIONALLY LEFT BLANK]
F-17
<PAGE>
MANTECH SOLUTIONS CORPORATION
REPORT ON FINANCIAL STATEMENTS
EIGHT MONTHS ENDED AUGUST 31, 1996,
YEAR ENDED DECEMBER 31, 1995 AND
FEBRUARY 19, 1994 (INCEPTION DATE)
TO DECEMBER 31, 1994
F-18
<PAGE>
MANTECH SOLUTIONS CORPORATION
REPORT ON FINANCIAL STATEMENTS
EIGHT MONTHS ENDED AUGUST 31, 1996,
YEAR ENDED DECEMBER 31, 1995 AND
FEBRUARY 19, 1994 (INCEPTION DATE)
TO DECEMBER 31, 1994
CONTENTS
PAGE
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS F-20
BALANCE SHEETS F-21
STATEMENTS OF OPERATIONS F-22
STATEMENTS OF STOCKHOLDERS' DEFICIENCY F-23
STATEMENTS OF CASH FLOWS F-24
NOTES TO FINANCIAL STATEMENTS F-25 - F-32
F-19
<PAGE>
Report on Independent Certified Public Accountants
Board of Directors
ManTech Solutions Corporation
Springfield, Virginia
We have audited the accompanying balance sheets of ManTech Solutions Corporation
(the "Company") as of August 31, 1996 and December 31, 1995 and 1994 and the
related statements of operations, stockholders' deficiency, and cash flows for
the eight months ended August 31, 1996, the year ended December 31, 1995 and the
period February 19, 1994 (inception date) to December 31, 1994. 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 Company as of August 31,
1996 and December 31, 1995 and 1994, and the results of its operations and its
cash flows for the periods presented in conformity with generally accepted
accounting principles.
/s/ MILLER, ELLIN & COMPANY
MILLER, ELLIN & COMPANY
CERTIFIED PUBLIC ACCOUNTANTS
New York, New York
October 25, 1996
F-20
<PAGE>
MANTECH SOLUTIONS CORPORATION
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
AUGUST 31, ---------------------------
1996 1995 1994
------------ ------------ ------------
ASSETS
<S> <C> <C> <C>
CURRENT ASSETS:
Cash $ 9,127 $ 15,979 $ 185,375
Accounts receivable - trade,
less allowance for doubtful accounts
of $142,990, $107,532 and $54,628,
respectively (Note 6) 3,224,407 3,440,195 2,278,768
Inventories (Notes 3 and 6) 2,993,810 1,396,085 1,618,197
Prepaid expenses and other current assets 64,590 50,086 60,558
Deferred income taxes 722,038 1,554,933 727,104
------------ ------------ ------------
Total current assets 7,013,972 6,457,278 4,870,002
PROPERTY AND EQUIPMENT - net of
accumulated depreciation and amortization
(Note 4) 481,030 582,656 675,050
INTANGIBLE ASSETS - net of accumulated
amortization (Note 5) 594,918 690,383 833,579
OTHER ASSETS 20,957 25,321 27,394
------------ ------------ ------------
$ 8,110,877 $ 7,755,638 $ 6,406,025
============ ============ ============
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
CURRENT LIABILITIES:
Due to parent company (Note 6) $ 9,544,192 $ 9,248,571 $ 5,195,581
Accounts payable and accrued expenses 2,238,172 1,395,907 1,742,513
Royalty payable 107,291 93,332 --
Non-compete payable -
current portion (Note 2) -- 12,500 75,000
Sales tax payable 66,090 103,444 94,636
Customer deposits 83,797 27,834 242,504
Warranty reserve 200,000 143,050 130,556
------------ ------------ ------------
Total current liabilities 12,239,542 11,024,638 7,480,790
------------ ------------ ------------
NON-COMPETE PAYABLE - net of
current portion (Note 2) -- -- 12,500
------------ ------------ ------------
COMMITMENTS (Note 8)
STOCKHOLDERS' DEFICIENCY:
Common stock - $1.00 par value:
Authorized - 10,000 shares
Issued and outstanding - 1,000 shares 1,000 1,000 1,000
Additional paid-in capital 49,000 49,000 49,000
Accumulated deficit (4,178,665) (3,319,000) (1,137,265)
------------ ------------ ------------
Total stockholders' deficiency (4,128,665) (3,269,000) (1,087,265)
------------ ------------ ------------
$ 8,110,877 $ 7,755,638 $ 6,406,025
============ ============ ============
</TABLE>
The accompanying notes are an integral part of the financial statements
F-21
<PAGE>
MANTECH SOLUTIONS CORPORATION
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FEBRUARY 19,
1994
EIGHT (INCEPTION
MONTHS DATE)
ENDED YEAR ENDED TO
AUGUST 31, DECEMBER 31, DECEMBER 31,
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
NET SALES (includes sales to related
parties of $268,859, $250,083 and
$389,487, respectively) $ 18,134,212 $ 23,440,555 $ 21,820,929
COST OF GOODS SOLD 16,262,313 21,102,857 19,137,445
------------ ------------ ------------
GROSS PROFIT 1,871,899 2,337,698 2,683,484
------------ ------------ ------------
EXPENSES:
Selling, shipping and general and
administrative expenses 2,274,482 4,815,038 4,120,569
Depreciation and amortization 114,199 169,808 122,406
Amortization of intangibles 95,465 143,196 105,426
------------ ------------ ------------
2,484,146 5,128,042 4,348,401
------------ ------------ ------------
LOSS FROM OPERATIONS (612,247) (2,790,344) (1,664,917)
------------ ------------ ------------
OTHER INCOME (EXPENSES):
Interest expense - parent company (Note 6) (808,590) (854,928) (188,086)
Interest expense -- (1,338) (11,366)
Sundry income 11,192 -- --
------------ ------------ ------------
(797,398) (856,266) (199,452)
------------ ------------ ------------
LOSS BEFORE PROVISION FOR
INCOME TAX CREDITS (1,409,645) (3,646,610) (1,864,369)
PROVISION FOR INCOME
TAX CREDITS (Note 7) (549,980) (1,464,875) (727,104)
------------ ------------ ------------
NET LOSS $ (859,665) $ (2,181,735) $ (1,137,265)
============ ============ ============
</TABLE>
The accompanying notes are an integral part of the financial statements
F-22
<PAGE>
MANTECH SOLUTIONS CORPORATION
STATEMENTS OF STOCKHOLDERS' DEFICIENCY
EIGHT MONTHS ENDED AUGUST 31, 1996,
YEAR ENDED DECEMBER 31, 1995 AND
FEBRUARY 19, 1994 (INCEPTION DATE)
TO DECEMBER 31, 1994
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL TOTAL
------------------------- PAID-IN ACCUMULATED STOCKHOLDERS'
SHARES AMOUNT CAPITAL DEFICIT DEFICIENCY
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
BALANCE AT
FEBRUARY 19, 1994 -- $ -- $ -- $ -- $ --
Capital contribution 1,000 49,000 -- 50,000
Net loss for the period
February 19, 1994
(inception date) to
December 31, 1994 -- -- -- (1,137,265) (1,137,265)
----------- ----------- ----------- ----------- -----------
BALANCE AT
DECEMBER 31, 1994 -- 1,000 49,000 (1,137,265) (1,087,265)
Net loss for the year
ended December 31, 1995 -- -- -- (2,181,735) (2,181,735)
----------- ----------- ----------- ----------- -----------
BALANCE AT
DECEMBER 31, 1995 -- 1,000 49,000 (3,319,000) (3,269,000)
Net loss for the eight months
ended August 31, 1996 -- -- -- (859,665) (859,665)
----------- ----------- ----------- ----------- -----------
BALANCE AT
AUGUST 31, 1996 -- $ 1,000 $ 49,000 $(4,178,665) $(4,128,665)
=========== =========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements
F-23
<PAGE>
MANTECH SOLUTIONS CORPORATION
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FEBRUARY 19,
1994
EIGHT (INCEPTION
MONTHS DATE)
ENDED YEAR ENDED TO
AUGUST 31, DECEMBER 31, DECEMBER 31,
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (859,665) $(2,181,735) $(1,137,265)
Adjustments to reconcile net loss to net cash
provided by (used in) operations:
Depreciation and amortization 114,199 169,808 122,406
Amortization of intangible assets 95,465 143,196 105,426
Allowance for doubtful accounts 35,458 52,904 54,628
Deferred income taxes 832,895 (827,829) (727,104)
Changes in assets and liabilities:
Accounts receivable 180,330 (1,214,331) (2,333,396)
Inventories (1,597,725) 222,112 (1,618,197)
Prepaid expenses and other (14,504) 10,472 (60,558)
Other assets 4,364 2,073 (27,394)
Accounts payable and accrued expenses 842,265 (346,606) 1,614,631
Royalties payable 13,959 93,332 --
Due to parent company 295,621 4,052,990 5,195,581
Warranty reserve 56,950 12,494 (393,567)
Sales tax payable (37,354) 8,808 94,636
Customer deposits 55,963 (214,670) 242,504
----------- ----------- -----------
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES 18,221 (16,982) 1,132,331
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (12,573) (77,414) (404,456)
----------- ----------- -----------
NET CASH USED IN INVESTING ACTIVITIES (12,573) (77,414) (404,456)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments of non-compete payable (12,500) (75,000) (62,500)
Capital contribution -- -- 50,000
Payments on capital lease obligation -- -- (45,000)
Payments of long-term debt -- -- (485,000)
----------- ----------- -----------
NET CASH USED IN FINANCING ACTIVITIES (12,500) (75,000) (542,500)
----------- ----------- -----------
NET CHANGE IN CASH (6,852) (169,396) 185,375
CASH - beginning 15,979 185,375 --
----------- ----------- -----------
CASH - ending $ 9,127 $ 15,979 $ 185,375
=========== =========== ===========
SCHEDULE OF NON-CASH OPERATING, INVESTING
AND FINANCING ACTIVITIES:
Lease and purchase of assets pursuant to agreement $ -- $ -- $ (530,000)
Purchase of intangible assets -- -- (150,000)
Issuance of debt thereon -- -- 680,000
----------- ----------- -----------
$ -- $ -- $ --
=========== =========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for interest $ 808,590 $ 856,266 $ 199,452
Cash paid for income taxes -- -- --
</TABLE>
The accompanying notes are an integral part of the financial statements
F-24
<PAGE>
MANTECH SOLUTIONS CORPORATION
NOTES TO FINANCIAL STATEMENTS
EIGHT MONTHS ENDED AUGUST 31, 1996,
YEAR ENDED DECEMBER 31, 1995 AND
FEBRUARY 19, 1994 (INCEPTION DATE)
TO DECEMBER 31, 1994
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Business
-------------------------
ManTech Solutions Corporation (the "Company") is a wholly-owned subsidiary
of ManTech International Corporation ("ManTech"). The Company manufactures
made-to-order computer servers and workstations and serves customers in
the northeastern part of the United States.
Basis of Presentation
---------------------
The balance sheets include the accounts of the Company as at August 31,
1996 and December 31, 1995 and 1994. The statements of operations, cash
flows and stockholders' deficiency include the accounts of the Company for
the eight months ended August 31, 1996 ("1996"), the year ended December
31, 1995 ("1995") and the period February 19, 1994 (inception date) to
December 31, 1994 ("1994").
Use of Estimates in the Preparation of Financial Statements
-----------------------------------------------------------
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 these
estimates.
Revenue Recognition
-------------------
Revenue is recognized upon the shipment of products or performance of
services.
Service revenue is recognized only when all significant obligations have
been performed.
Warranty Costs
--------------
The Company provides for an amount it estimates will be needed to cover
future warranty obligations.
F-25
<PAGE>
MANTECH SOLUTIONS CORPORATION
NOTES TO FINANCIAL STATEMENTS
EIGHT MONTHS ENDED AUGUST 31, 1996,
YEAR ENDED DECEMBER 31, 1995 AND
FEBRUARY 19, 1994 (INCEPTION DATE)
TO DECEMBER 31, 1994
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Concentrations of Credit Risk
-----------------------------
Accounts Receivable - Trade
---------------------------
Accounts receivable consist of open trade accounts with various
companies. The Company performs ongoing credit evaluations of its
customers and believes that adequate allowances for any uncollectible
receivables are maintained.
At August 31, 1996, two customers represented 55% of accounts
receivable. At December 31, 1995, two customers represented 58% of
accounts receivable of which one customer represented 40% of accounts
receivable. At December 31, 1994, one customer represented 34% of
accounts receivable.
Major Customers
---------------
In 1996, two customers accounted for 42% of sales of which one
customer accounted for 29% of sales. In 1995, two customers accounted
for 37% of sales of which one customer accounted for 24% of sales.
There were no major customers in 1994.
Cash
----
The Company maintains cash balances in its banks which at times
exceed the limits of the Federal Deposit Insurance Corporation.
Inventories
-----------
Inventories are valued on an identified cost basis and are carried at the
lower of cost or market.
Property and Equipment
----------------------
Property and equipment is stated at cost. Depreciation is provided using
the straight-line method over the estimated useful lives of the assets as
follows:
Machinery and equipment - 5 years
Furniture and fixtures - 5 years
Leasehold improvements - Life of lease
Expenditures for repairs and maintenance are charged to expense as
incurred.
F-26
<PAGE>
MANTECH SOLUTIONS CORPORATION
NOTES TO FINANCIAL STATEMENTS
EIGHT MONTHS ENDED AUGUST 31, 1996,
YEAR ENDED DECEMBER 31, 1995 AND
FEBRUARY 19, 1994 (INCEPTION DATE)
TO DECEMBER 31, 1994
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Intangible Assets
-----------------
The excess of the purchase cost over the fair value of net assets acquired
in the acquisition (see Note 2) is included in intangible assets and is
being amortized over fifteen years on a straight-line basis in accordance
with Statement of Financial Accounting Standards No. 121 (SFAS No. 121),
"Accounting for the Impairment of Long-lived Assets and For Long-lived
Assets to Be Disposed Of." The Company periodically will review goodwill
to assess recoverability based upon undiscounted expected future cash
flows for Accel. Testing for such recoverability in each reporting period
may not be cost effective or even possible and in such cases, the Company
will test assets for impairment if a triggering event occurs (events or
changes in circumstances such that the carrying amount of the assets may
not be recoverable). Impairments would be recognized if a permanent
diminution in value were to occur. (See Note 5.)
Income Taxes
------------
The Company utilizes SFAS No. 109, "Accounting for Income Taxes," which
requires the use of the liability method of accounting for income taxes.
The liability method measures deferred income taxes by applying enacted
statutory rates in effect at the balance sheet date to the differences
between the tax bases of assets and liabilities and their reported amounts
in the financial statements. The resulting deferred tax assets or
liabilities are adjusted to reflect changes in tax laws as they occur.
NOTE 2 - ACQUISITIONS
On February 19, 1994, the Company entered into an agreement to lease
certain personal and real property and certain intellectual property from
Accel, Inc. and Accel 128, Inc. (together as "Accel") with an option to
purchase such assets. The Company agreed to pay the following:
1. $6,667 per month for the personal and real property and
2. $2,223 per month for the intellectual property
The total payments under the lease totalled $530,000. The Company made
five payments totalling $45,000 between March 1994 and July 1994. On July
25, 1994, the Company exercised its option to purchase the above property
at a total purchase price of $485,000. This transaction was accounted for
as a purchase.
The $485,000 purchase price was paid by ManTech between August and
December 1994.
The following condensed balance sheet reflects the purchase of the net
assets of Accel:
Property and equipment $ 393,000
Customer lists 137,000
Excess cost of acquisition over
net tangible assets acquired 652,005
Liabilities assumed (652,005)
-----------
$ 530,000
===========
F-27
<PAGE>
MANTECH SOLUTIONS CORPORATION
NOTES TO FINANCIAL STATEMENTS
EIGHT MONTHS ENDED AUGUST 31, 1996,
YEAR ENDED DECEMBER 31, 1995 AND
FEBRUARY 19, 1994 (INCEPTION DATE)
TO DECEMBER 31, 1994
NOTE 2 - ACQUISITIONS (CONTINUED)
In addition, pursuant to the lease with Accel, the Company agreed to pay
for the following:
1. $35,000 for a software license agreement. Such amount was paid by
ManTech in March 1994.
2. $150,000 in consideration of a non-competition agreement payable at
$6,250 per month for two years. The balance owed under the agreement
amounted to $-0-, $12,500 and $87,500 as at August 31, 1996 and
December 31, 1995 and 1994, respectively.
NOTE 3 - INVENTORIES
Inventories consist of the following:
December 31,
August 31, -----------------------
1996 1995 1994
---------- ---------- ----------
Raw materials $1,852,326 $1,108,135 $ 969,748
Work in process 609,742 287,950 648,449
Finished goods 531,742 -- --
---------- ---------- ----------
$2,993,810 $1,396,085 $1,618,197
========== ========== ==========
NOTE 4 - PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
December 31,
August 31, -------------------
1996 1995 1994
-------- -------- --------
Machinery and equipment $299,739 $306,835 $312,870
Furniture and fixtures 479,725 478,566 479,771
Leasehold improvements 38,252 38,252 4,816
-------- -------- --------
817,716 823,653 797,457
Less: Accumulated depreciation and
amortization 336,686 240,997 122,407
-------- -------- --------
$481,030 $582,656 $675,050
======== ======== ========
Depreciation and amortization amounted to $122,406, $169,808 and $114,199
for 1996, 1995 and 1994, respectively.
F-28
<PAGE>
MANTECH SOLUTIONS CORPORATION
NOTES TO FINANCIAL STATEMENTS
EIGHT MONTHS ENDED AUGUST 31, 1996,
YEAR ENDED DECEMBER 31, 1995 AND
FEBRUARY 19, 1994 (INCEPTION DATE)
TO DECEMBER 31, 1994
NOTE 5 - INTANGIBLE ASSETS
Intangible assets consist of the following:
December 31,
August 31, -------------------
1996 1995 1994
-------- -------- --------
Excess cost of acquisition over
net tangible assets acquired $652,005 $652,005 $652,005
Non-compete agreement(*) 150,000 150,000 150,000
Customer lists (*) 137,000 137,000 137,000
-------- -------- --------
939,005 939,005 939,005
Less: Accumulated amortization 344,087 248,622 105,426
-------- -------- --------
$594,918 $690,383 $833,579
======== ======== ========
(*) Amortized over five years on a straight-line basis.
Amortization amounted to $105,426, $143,196 and $95,465 for 1996, 1995 and
1994, respectively.
NOTE 6 - DUE TO PARENT COMPANY
Due to parent company represents advances made and expense allocations
charged to the Company in excess of payments made to ManTech. Management
believes that the allocations are proper and reasonable.
Interest charged on these balances amounted to $808,590, $854,928 and
$188,086 for 1996, 1995 and 1994, respectively.
ManTech has a Revolving Credit Loan Agreement ("Agreement") with its
primary lender whereby it may borrow the lesser of defined percentages of
receivables up to $35,000,000. Such borrowings are collateralized by
ManTech's eligible accounts receivable and inventory. Such collateralized
assets include such assets of the Company.
F-29
<PAGE>
MANTECH SOLUTIONS CORPORATION
NOTES TO FINANCIAL STATEMENTS
EIGHT MONTHS ENDED AUGUST 31, 1996,
YEAR ENDED DECEMBER 31, 1995 AND
FEBRUARY 19, 1994 (INCEPTION DATE)
TO DECEMBER 31, 1994
NOTE 7 - INCOME TAXES
All company operations are located in the United States. As such, loss
before provision for income taxes and provision for income taxes are
generated from domestic sources.
<TABLE>
<CAPTION>
December 31,
August 31, --------------------------
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Loss before provision for income taxes $(1,409,645) $(3,646,610) $(1,864,369)
=========== =========== ===========
The components of provision for
income tax credits by taxing jurisdiction
are as follows:
Federal:
Current $ -- $ -- $ --
Deferred (439,984) (1,171,900) (581,683)
----------- ----------- -----------
State:
Current -- -- --
Deferred (109,996) (292,975) (145,421)
----------- ----------- -----------
(109,996) (292,975) (145,421)
----------- ----------- -----------
$ (549,980) $(1,464,875) $ (727,104)
=========== =========== ===========
</TABLE>
The major components of deferred tax assets are as follows:
December 31,
August 31, -----------------------
1996 1995 1994
---------- ---------- ----------
Net operating loss carryforwards* $ 453,059 $1,382,930 $ 594,349
Various reserves, including warranty
inventory and accounts receivable 268,979 172,003 132,755
---------- ---------- ----------
$ 722,038 $1,554,933 $ 727,104
========== ========== ==========
* The net operating loss carryforward represents only the current
year's loss as the Company receives an intercompany credit from
ManTech for the previous year's loss.
No valuation allowance was provided on the net operating loss
carryforwards as such losses will be utilized by ManTech in its
consolidated income tax returns. No valuation allowance was provided for
the other deferred tax assets as they were considered realizable by
ManTech.
F-30
<PAGE>
MANTECH SOLUTIONS CORPORATION
NOTES TO FINANCIAL STATEMENTS
EIGHT MONTHS ENDED AUGUST 31, 1996,
YEAR ENDED DECEMBER 31, 1995 AND
FEBRUARY 19, 1994 (INCEPTION DATE)
TO DECEMBER 31, 1994
NOTE 7 - INCOME TAXES (CONTINUED)
A reconciliation of the Company's income tax expense computed at the U.S.
federal statutory tax rate of 35% and provision for income tax credits is
as follows:
December 31,
August 31, --------------------------
1996 1995 1994
----------- ----------- -----------
Income tax expense at statutory rate $ (493,376) $(1,276,314) $ (652,529)
Financial/tax adjustments -
no carryback available 493,376 1,276,314 652,529
Current year's net operating loss
carryforward (453,059) (1,382,930) (594,349)
Change in deferred tax assets (96,921) (81,945) (132,755)
----------- ----------- -----------
$ (549,980) $(1,464,875) $ (727,104)
=========== =========== ===========
NOTE 8 - COMMITMENTS
Leases
------
All of the Company's operations take place in leased facilities.
The Company leases its office and warehouse facilities under leases
expiring through October 1998. The Company is also responsible for its
share of operating expenses (as defined). In addition, the Company leases
equipment under various leases expiring through January 1999.
Future minimum rental payments under the leases, before giving effect to
the sale of the Company's net assets (see Note 10), are as follows:
Twelve Months Real
Ended August 31, Estate Equipment
---------------- ------ ---------
1997 $415,316 $ 65,461
1998 216,565 39,492
1999 7,635 9,091
-------- --------
$639,516 $114,044
======== ========
Real estate rent expense amounted to $285,285, $543,452 and $406,400 for
1996, 1995 and 1994, respectively.
F-31
<PAGE>
MANTECH SOLUTIONS CORPORATION
NOTES TO FINANCIAL STATEMENTS
EIGHT MONTHS ENDED AUGUST 31, 1996,
YEAR ENDED DECEMBER 31, 1995 AND
FEBRUARY 19, 1994 (INCEPTION DATE)
TO DECEMBER 31, 1994
NOTE 9 - FAIR VALUE OF FINANCIAL INSTRUMENTS
The amounts at which cash, accounts receivable, accounts payable, accrued
expenses and other current liabilities and due to parent company are
presented in the balance sheet approximate their fair value due to their
short maturities.
NOTE 10 - SALE OF ASSETS
On September 16, 1996, the Company entered into a contract with
Global-InSync, Inc. ("InSync"), a wholly-owned subsidiary of Global
Intellicom, Inc. ("Global"), to sell substantially all of its assets,
subject to certain liabilities. The sale was effective on September 1,
1996.
The sales price was $5,736,084 and was paid as follows:
1. The issuance of 350,000 shares of Global Series 3 Cumulative
Preferred Stock with a 6% annual dividend, convertible at a value of
$10 per share to restricted shares of Global common stock. Such
preferred stock was valued at $3,500,000.
2. The issuance of a 9% promissory note for $1,486,084 ("First Note").
Interest begins accruing on March 16, 1997. Payments are to be made
forty five days after each fiscal quarter, commencing with the
quarter ended June 30, 1997. The payments are calculated as follows:
1. 2% of net sales of InSync. Net sales are defined as gross
sales less sales discounts, returns and allowances.
2. If at the end of four quarters ended June 30th (commencing in
1998), the sum of the quarterly payments is less than the
interest accrued over the previous four quarters plus ten
percent (10%) of the original principal of the note
($148,608), an adjustment payment will be made to cover such
shortfall.
The note is guaranteed by Global.
3. The issuance of a 9% promissory note for $470,000 with substantially
the same terms as the First Note, except that payments do not
commence until the earlier of December 31, 2001 of upon the payment
of the First Note.
The note is guaranteed by Global.
4. The issuance of 49,778 restricted shares of Global's common stock,
valued at $280,000.
F-32
<PAGE>
SIGNATURE
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.
By: /s/ Anthony R. Cucchi
-----------------------------
Anthony R. Cucchi
President
Dated: November 26, 1996
